(804) 281-6000
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)
MICHAEL D. PAPPAS, ESQ.
ASSOCIATE GENERAL COUNSEL
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY
6610 WEST BROAD STREET
RICHMOND, VIRGINIA 23230
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
-------------------------------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: Upon the effective date of this
Post-Effective Amendment to this Registration Statement
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX):
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on April 30, 2010 pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] on (date) pursuant to paragraph (a)(1) of Rule 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
TITLE OF SECURITIES BEING REGISTERED: Scheduled Purchase Payment Variable
Deferred Annuity Contracts
================================================================================
GENWORTH LIFE & ANNUITY VA SEPARATE ACCOUNT 1
PROSPECTUS FOR
SCHEDULED PURCHASE PAYMENT VARIABLE DEFERRED ANNUITY CONTRACTS
$1,000,000,000
ISSUED BY:
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY
--------------------------------------------------------------------------------
Genworth Life and Annuity Insurance Company discontinued offering the contracts
for new sales effective December 31, 2008. Contract owners may continue to make
purchase payments in accordance with the terms of their contract and as
described in this prospectus.
This prospectus dated April 30, 2010, describes scheduled purchase payment
variable deferred annuity contracts (the "contracts") for individuals or groups
and certain qualified and non-qualified retirement plans. Genworth Life and
Annuity Insurance Company (the "Company," "we," "us," or "our") issues the
contract.
This prospectus describes all material features and benefits of the contract
and provides details about Genworth Life & Annuity VA Separate Account 1 (the
"Variable Account") you should know before investing. Please read this
prospectus carefully and keep it for future reference.
The contract offers you the payment of periodic annuity benefits and the
accumulation of Contract Value. If you satisfy certain conditions, you will
receive lifetime Income Payments of a guaranteed minimum amount and the
potential to receive more than the guaranteed minimum amount.
The contract requires you to make monthly payments in predetermined amounts to
be eligible to receive guaranteed minimum payments at the time you annuitize
the contract. We must receive these payments by a set date ("due date") each
month. If we receive your payment on the due date, we will allocate your
payment to a Subaccount that invests in shares of the GE Investments Funds,
Inc. -- Total Return Fund (the "Total Return Fund"). All shares of the Total
Return Fund outstanding on May 1, 2006 were re-designated as Class 1 shares and
will remain the investment option for the Subaccount for contracts issued
before May 1, 2006. The Subaccount will invest in Class 3 shares, for contracts
issued on or after May 1, 2006. If we receive your payment before its due date,
we will allocate it to our Guarantee Account, which is part of our General
Account, until the due date. On the due date, we will transfer that payment to
the Subaccount. If we receive your payment more than 30 days after its due
date, you must pay interest on that payment. The interest must be paid within
one year of the transfer due date in order to retain your eligibility to
receive Guaranteed Minimum Income Payments (unless you meet the requirements
for reduced Guaranteed Minimum Income Payments pursuant to a vesting schedule).
We anticipate that you will make your monthly payments by submitting payments
to us on a monthly basis. However, we will allow you to supplement or prepay
some, or all, of your monthly payments by making a lump sum payment of at least
a certain amount. If the lump sum amount is greater than six monthly payments,
we will allocate that lump sum amount to a non-unitized separate account that
we have established to hold the supplemental or prepayments you make. Amounts
in the non-unitized separate account will earn a predetermined rate of
interest. Depending upon your instructions and the amount of the lump sum
payment received, we will use such lump sum payment to either lower the amount
of some or all of your remaining monthly payments or to pay the entire amount
of some or all of your remaining monthly payments. If you do not provide
instructions when you make a lump sum payment, we will allocate that payment to
our Guarantee Account until we receive your instructions.
Before your Income Payments begin, you may surrender or take partial
withdrawals from your contract. Amounts you surrender or partially withdraw may
be subject to a surrender or access charge; amounts you surrender or partially
withdraw from the non-unitized separate account may also be subject to a Market
Value Adjustment. You must repay any amount you receive from the Subaccount,
PLUS interest, within one year of the partial withdrawal to retain your
eligibility to receive Guaranteed Minimum Income Payments (unless you meet the
requirements for reduced Guaranteed Minimum Income Payments pursuant to a
vesting schedule).
The value of your contract before your Income Payments begin, and the amount of
your Income Payments (if you lose your right to receive Guaranteed Minimum
Income Payments), will depend upon the investment performance of the Total
Return Fund. You bear the risk of investment loss.
1
YOU SHOULD NOT PURCHASE THIS CONTRACT UNLESS YOU BELIEVE YOU CAN MAKE ALL
REQUIRED PAYMENTS AND YOU INTEND TO TAKE YOUR ANNUITY BENEFITS IN THE FORM OF
MONTHLY INCOME PAYMENTS.
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES, NOR HAS THE SEC DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE.
Your investment in the contract:
. Is NOT a bank deposit
. Is NOT FDIC insured
. Is NOT insured or endorsed by a bank or any government agency
. Is NOT available in every state
. MAY go down in value
A Statement of Additional Information, dated April 30, 2010, which contains
additional information about the contract, has been filed with the SEC and is
incorporated by reference into this prospectus. A table of contents for the
Statement of Additional Information appears on the last page of this prospectus.
For general information or to obtain free copies of the:
. Statement of Additional Information;
. annual report for the Variable Account;
. prospectus, annual report or semi-annual report for the Total Return Fund;
or
. any required forms,
call us at 800.352.9910; or
write us at:
Genworth Life and Annuity Insurance Company
6610 West Broad Street
Richmond, Virginia 23230
Material incorporated by reference can be found on the SEC's website at:
www.sec.gov
2
TABLE OF CONTENTS

4
DEFINITIONS
The following defined terms are used throughout this prospectus:
ACCUMULATION PERIOD -- The period from the date your contract is issued until
the date Income Payments begin.
ACCUMULATION UNIT -- An accounting unit of measure we use to calculate the
value of the Subaccount until the date Income Payments begin.
ADJUSTMENT ACCOUNT -- An account that we establish for each contract to keep
track of the cumulative amount, if any, by which the Calculated Level Monthly
Benefits fall short of the Guaranteed Minimum Income Payments.
ANNUAL VARIABLE ANNUITY BENEFIT -- The Income Payment calculated annually by
multiplying the number of Annuity Units for a contract by the Annuity Unit
value as of the Annuity Commencement Date and each anniversary of the Annuity
Commencement Date.
ANNUITANT/JOINT ANNUITANT -- The person(s) named in the contract whose age and,
where appropriate, gender, determine Monthly Income Payments. The Owner must
also be named as the Annuitant unless the Owner is not a natural person.
ANNUITY COMMENCEMENT DATE -- The date Income Payments are scheduled to begin as
chosen at the time of application. This date must be a date at least 10 years
from the date the contract is issued and may not be changed once the contract
is issued.
ANNUITY UNIT -- An accounting unit of measure we use to calculate the amount of
the second and each subsequent Annual Variable Annuity Benefit.
ANNUITY YEAR -- The twelve month period beginning on the Annuity Commencement
Date or any anniversary of that date thereafter.
CALCULATED LEVEL MONTHLY BENEFIT -- One-twelfth of the Annual Variable Annuity
Benefit PLUS level interest over a twelve month period.
CODE -- The Internal Revenue Code of 1986, as amended.
CONTRACT DATE -- The date we issue your contract. Your Contract Date is shown
on your contract's data pages.
CONTRACT VALUE -- The sum of your contract's Guarantee Account Value,
Subaccount Value, and Immediate Installment Account Value.
CONTRACT YEAR -- Each one year period of time beginning on the date your
contract is issued and ending on the contract anniversary date. The next
contract year will begin on that contract anniversary date and commence on the
next contract anniversary date and so on.
DEATH BENEFIT -- The benefit payable under a contract upon the death of any
Owner (or the Annuitant if the Owner is a non-natural person) before the
Annuity Commencement Date.
DESIGNATED BENEFICIARY(IES) -- The person(s) or entity(ies) designated by the
Owner to receive the Death Benefit.
FLEXIBLE PURCHASE PAYMENT -- A Purchase Payment that is not a Scheduled
Purchase Payment.
FUNDING ANNUITY -- A variable deferred annuity issued by Genworth Life and
Annuity Insurance Company or one of its affiliated companies that is purchased
on the same date as the variable deferred annuity contract described by this
prospectus; the assets of the Funding Annuity are withdrawn and immediately
allocated to this annuity.
GENERAL ACCOUNT -- Assets of the Company other than those allocated to the
Immediate Installment Account, the Variable Account or any other segregated
asset account of the Company.
GUARANTEE ACCOUNT -- An account established in our General Account to hold
certain amounts under the contracts as described in this prospectus. The
Guarantee Account is not part of and does not depend on the investment
performance of the Variable Account.
GUARANTEE ACCOUNT VALUE -- Your Guarantee Account Value equals Purchase
Payments allocated to the Guarantee Account (PLUS transfers to the Guarantee
Account from a Funding Annuity under an Annuity Cross Funding Program, if
applicable) PLUS interest credited on those payments (or transfers), MINUS
transfers and/or partial withdrawals made from the Guarantee Account
(including, any premium tax and surrender charges assessed).
GUARANTEED MINIMUM INCOME PAYMENT -- The minimum amount of each monthly Income
Payment paid to you upon annuitization of the contract, provided Scheduled
Installments have been made to the Subaccount in accordance with the terms of
the contract.
HOME OFFICE -- Our office located at 6610 West Broad Street, Richmond, Virginia
23230.
IMMEDIATE INSTALLMENT -- A monthly series of equal transfers from the Immediate
Installment Account to the Subaccount.
IMMEDIATE INSTALLMENT ACCOUNT -- Genworth Life & Annuity MVA Separate Account,
a separate account of the Company to which your Flexible Purchase Payments are
allocated.
5
IMMEDIATE INSTALLMENT ACCOUNT VALUE -- The present value of the future
Immediate Installments to be made from the Immediate Installment Account. This
amount includes any applicable Market Value Adjustment.
INCOME PAYMENT -- One of a series of payments made under either monthly Income
Payments at the Annuity Commencement Date or one of the Optional Payment Plans.
MARKET VALUE ADJUSTMENT -- A positive or negative adjustment included in the
Contract Value when any amounts are surrendered or partially withdrawn
(including Death Benefit payments) from the Immediate Installment Account.
MONTHLY DUE DATE -- The date each month on which Scheduled Installments and
Scheduled Purchase Payments are due. This date is the same day in each month as
your Contract Date. If the Monthly Due Date is the 29th, 30th or 31st of a
month, then for months without such dates, the last day of that month is the
Monthly Due Date. In addition, if the Monthly Due Date falls on any date when
the New York Stock Exchange is closed, the amount of the Scheduled Installment,
if received, will be allocated to the Subaccount on the next Valuation Day.
NON-QUALIFIED CONTRACT -- A contract which is not issued in connection with a
retirement plan which receives special tax treatment under the Code.
OWNER -- The person or persons (in the case of Joint Owners) entitled to
exercise all ownership rights stated in the contract. The Owners are shown on
the contract's data pages. "You" or "your" refers to the Owner or Joint Owners.
PURCHASE PAYMENT -- Any payment applied to the contract.
QUALIFIED CONTRACT -- A contract which qualifies for favorable tax treatment
under the Code.
SCHEDULED INSTALLMENT -- The amount required to be transferred or paid to the
Subaccount on the Monthly Due Date in order to keep the Guaranteed Minimum
Income Payment in effect.
SCHEDULED PURCHASE PAYMENT -- The monthly Purchase Payment we require on the
Monthly Due Date to ensure that the Scheduled Installment for that month is
paid. This amount is shown on your contract's data pages.
SUBACCOUNT -- A division of the Variable Account which invests exclusively in
shares of the Total Return Fund. For contracts issued on or after May 1, 2006,
the Subaccount invests in the Total Return Fund -- Class 3 shares. For
contracts issued before May 1, 2006, the Subaccount invests in the Total Return
Fund -- Class 1 shares.
SUBACCOUNT VALUE -- The Subaccount Value is equal to:
. the sum of all Scheduled Installments made to the Subaccount; PLUS
. amounts adjusted for the reinvestment of dividends; PLUS or MINUS
. net capital gains or losses (realized or unrealized); MINUS
. any contract charges (including any premium tax and surrender charges
assessed); PLUS or MINUS
. partial withdrawals repaid to or taken from the Subaccount.
SURRENDER VALUE -- The value of the contract as of the date we receive your
written request for surrender at our Home Office, less any applicable premium
tax, surrender charge, access charge, PLUS or MINUS any Market Value
Adjustment, if applicable.
VALUATION DAY -- Each day the New York Stock Exchange is open for regular
trading, except for days that the Total Return Fund does not value its shares.
VALUATION PERIOD -- The period that starts at the close of regular trading on
the New York Stock Exchange on any Valuation Day and ends at the close of
regular trading on the next succeeding Valuation Day.
VARIABLE ACCOUNT -- Genworth Life & Annuity VA Separate Account 1, a separate
account we established to receive and invest the Scheduled Installments you
make under this contract, in addition to amounts received from other variable
annuity contracts we issue.
6
FEE TABLES
The following tables describe fees and expenses that you will pay when buying,
owning or partially withdrawing assets or fully surrendering the contract. The
first table describes the fees and expenses that you will pay when you buy the
contract, take a partial withdrawal, fully surrender your contract, or transfer
assets among the investment options. State premium taxes may also be deducted.

CONTRACT OWNER TRANSACTION EXPENSES
-------------------------------------------------------------------------------------------------------------
Surrender Charge (as a percentage of purchase Contract Year in which Surrender Charge (as a
payments withdrawn or surrendered) surrender or partial percentage of the lesser
withdrawal is taken of Scheduled
Installments made to
date, not previously
withdrawn and the
amount withdrawn or
surrendered)/1/
----------------------------------------------------------
1 9%
2 8%
3 7%
4 6%
5 5%
6 4%
7 3%
8 2%
9 or after 1%
-------------------------------------------------------------------------------------------------------------
Access Charge/2/ Number of years remaining Access Charge (as a
on each flexible purchase percentage of the
payment until the date Immediate Installment
established for the installment Account value
transfers to end withdrawn or
surrendered)
----------------------------------------------------------
6 or more 6%
5 but less than 6 5%
4 but less than 5 4%
3 but less than 4 3%
2 but less than 3 2%
1 but less than 2 1%
0 but less than 1 1%
-------------------------------------------------------------------------------------------------------------
Annual Interest Rate Charged on
Missed Scheduled Installments/3/ 6%
-------------------------------------------------------------------------------------------------------------
Annual Interest Rate Charged on
Missed Withdrawal Repayments/4/ 6%
-------------------------------------------------------------------------------------------------------------

/1/Withdrawals repaid within 12 months are not considered withdrawals for the
purposes of the surrender charge calculation. A surrender charge will not be
assessed if the Surrender Value is applied to Optional Payment Plan 1,
Optional Payment Plan 2 (with a period certain of 10 or more years) or
Optional Payment Plan 5.
/2/All surrenders and withdrawals from the Immediate Installment Account will
be subject to a Market Value Adjustment as well as an Access Charge. An
Access Charge will not be assessed if the Surrender Value is applied to
Optional Payment Plan 1, Optional Payment Plan 2 (with a period certain of
10 or more years) or Optional Payment Plan 5.
/3/If a Scheduled Installment remains in default past the end of the applicable
grace period, a charge will be assessed to the amount in default at an
effective annual rate of 6%.
/4/You must repay the amount of any withdrawals from the Subaccount PLUS any
applicable interest on the amount received within one year from the date of
the partial withdrawal, but no later than the Annuity Commencement Date in
order to retain your eligibility to receive Guaranteed Minimum Income
Payments, unless you meet the requirements for reduced Guaranteed Minimum
Income Payments pursuant to a vesting schedule. If any repayment of a
withdrawal is not made by the Monthly Due Date next following the date of
the partial withdrawal, you will be assessed a charge at an effective annual
rate of 6% on the total amount withdrawn from the Subaccount not yet repaid.
7
The next table describes the fees and expenses that you will pay periodically
during the time you own the contract, not including the fees and expenses for
the Total Return Fund.

/1/The payment for the Optional Benefits is due with the Scheduled Purchase
Payment and taken prior to the allocation of the Scheduled Purchase Payment
to the Subaccount.
/2/The Optional Benefits are not available to fully funded contracts or to
contracts purchased through the Annuity Cross Funding Program (see
"Appendix --Annuity Cross Funding Program" provision in this prospectus).
/3/The fees charged for the optional riders vary depending upon the age and
gender of the Annuitant and the amount and duration of the Scheduled
Installments.
For information concerning compensation paid for the sale of the contract, see
the "Sales of the Contract" provision.
The next item shows the total annual operating expenses charged by the Total
Return Fund that you may pay during the time that you own the contract.
Effective on May 1, 2006, GE Investments Funds, Inc. adopted a multiple class
plan for the Total Return Fund. Under the multiple class plan, all shares of
the Total Return Fund outstanding on May 1, 2006 were redesignated as Class 1
shares and will remain the investment option for the Subaccount for contracts
issued before May 1, 2006. For contracts issued on or after May 1, 2006, the
Subaccount will invest in Class 3 shares. The following expenses are deducted
from Total Return Fund assets and include management fees, distribution and/or
service (12b-1) fees, and other expenses. Portfolio expenses are the
responsibility of the Total Return Fund. They are not fixed or specified under
the terms of the contract and are not the responsibility of the Company. More
detail concerning the Total Return Fund's fees and expenses is contained in the
prospectus for the Total Return Fund.

/1/The Portfolio expenses used to prepare this table were provided to the
Company by the Total Return Fund. The Company has not independently verified
such information.
/2/The Distribution and Service (12b-1) Fees of the Total Return Fund solely
attributable to its Class 3 shares are charged to the assets attributable to
the Class 3 shares.
/3/Other Expenses include all operating expenses of the Total Return Fund
except Management Fees and Distribution and Service (Rule 12b-1) Fees. Other
expenses also include Investor Service Plan fees (0.20% of the average daily
net assets of the Total Return Fund attributable to the Class 1 and Class 3
shares). The Class 3 Investor Service Plan was adopted by the Total Return
Fund on May 1, 2009. Other Expenses also include fees and expenses
associated with investments in investment companies, such as exchange traded
funds, the GEI Investment Fund and the GE Money Market Fund, which has
served as the cash sweep vehicle for the Total Return Fund since March 17,
2008 ("Acquired Fund Fees and Expenses"). For the most recent fiscal year,
the Acquired Fund Fees and Expenses were equal to 0.02% of the average daily
net assets of the Class 1 and Class 3 shares.
/4/GE Asset Management Incorporated, the investment adviser to the Total Return
Fund, has entered into a contractual arrangement with the Total Return Fund
to limit certain expenses of each share class of the Fund, excluding
applicable Investor Service Plan fees of 0.20%, at or below 0.03% on an
annualized basis. Such expense limit shall be effective through April 30,
2011. Expenses borne by GE Asset Management Incorporated pursuant to the
expense limitation agreement may be reimbursed by the Total Return Fund up
to three years from the date the expense was incurred. A reimbursement
payment will not be made if it would cause the Total Return Fund to exceed
its expense limit. This agreement can only be changed or terminated with the
approval of the GE Investment Funds, Inc. Board of Directors and GE Asset
Management Incorporated.
The expenses for the Total Return Fund are deducted by the Fund before it
provides us with the daily net asset values. We then deduct the Variable
Account charges from the net asset value in calculating the unit value of the
corresponding Subaccount. Management fees and other expenses for the Total
Return Fund are more fully described in its prospectus. Information relating to
the Total Return Fund was provided by the Total Return Fund and not
independently verified by us.
8
EXAMPLES
The Examples are intended to help you compare the cost of investing in this
contract with the cost of investing in other variable annuity contracts. These
costs include owner transaction expenses, contract and the maximum fee for the
optional rider charges, and fees and expenses for the Total Return Fund --
Class 3 shares. The expenses in the Examples would be lower if Class 1 shares
of the Total Return Fund were used instead.
The Examples show the dollar amount of expenses that would bear directly or
indirectly if you:
. invested $10,000 in the contract for time periods indicated;
. earned a 5% annual return on your investment;
. elected all available rider options; and
The Examples below assume:
. total Variable Account annual expenses of 1.50% (deducted daily at an
effective annual rate of the assets in the Variable Account); and
. $1,968.00 for all the available rider options (charged with the initial
investment, but subtracted prior to allocation of assets to the
Subaccount).
Your actual expenses may be higher or lower than those shown below. The
Examples do not include any taxes or tax penalties that may be assessed upon
surrender of the contract.
The following Example uses the assumptions noted above, but assumes you
surrender your contract at the end of the stated period:

Please remember that you are looking at Examples and not a representation of
past or future expenses. Your rate of return may be higher or lower than 5%
which is not guaranteed. The Examples do not assume that expense waivers or fee
reimbursements arrangements are in effect for the Total Return Fund -- Class 3
shares for the periods presented.
Deductions for premium taxes are not reflected, but may apply. If you did not
elect all of the optional riders or if you only elected one or a combination of
the optional riders, the expense figures shown above would be lower.
CONDENSED FINANCIAL INFORMATION
The value of an Accumulation Unit is determined on the basis of changes in the
per share value of the Total Return Fund and the assessment of Variable Account
charges. Please refer to the Statement of Additional Information for more
information on the calculation of Accumulation Unit values. The Accumulation
Unit value information for Accumulation Units outstanding for the period shown
are as follows:

9
SYNOPSIS AND RISK FACTORS
HOW DOES THIS CONTRACT WORK? The contract permits you to make Purchase
Payments during the Accumulation Period. During this period, we invest your
Purchase Payments in the Subaccount, the Immediate Installment Account, or the
Guarantee Account.
Purchase Payments received will be allocated as follows:
PURCHASE PAYMENT ALLOCATION TABLE

TYPE OF PAYMENT WHEN RECEIVED WHERE ALLOCATED
------------------------------------------------------
Scheduled Monthly Due Date Subaccount
Purchase
Payment or
portion thereof
------------------------------------------------------
Scheduled Before Monthly Guarantee
Purchase Due Date Account
Payment or
portion thereof
------------------------------------------------------
Scheduled After Monthly Due Subaccount for
Purchase Date any past due
Payment or Scheduled
portion thereof Installment
(including
interest), then
Guarantee
Account for
remainder
------------------------------------------------------
Flexible Purchase On or After Immediate
Payment that is Contract Date Installment
greater than 6 Account
Scheduled
Purchase
Payments with
instructions
------------------------------------------------------
Flexible Purchase On or After Guarantee
Payment that is Contract Date Account until
greater than 6 instructions
Scheduled received, then
Purchase transferred to
Payments without Immediate
instructions Installment
Account
------------------------------------------------------
Flexible Purchase On or After Guarantee
Payment that is Contract Date Account
equal to or less
than 6 Scheduled
Purchase
Payments
------------------------------------------------------

Should the payment received exceed the amount required to make all remaining
Scheduled Installments, the excess amount will be returned to the Owner within
7 days.
On the Annuity Commencement Date, we apply your Contract Value to purchase a
series of Income Payments. In turn, the Income Payments will be made to you
each month. Each monthly Income Payment during an Annuity Year is equal in
amount. Because we base the Income Payments on Subaccount performance, the
amount of the payments may change from Annuity Year to Annuity Year. However,
the amount paid per month will not be less than the Guaranteed Minimum Income
Payment, provided all contractual requirements have been satisfied for receipt
of those guaranteed payments. See "The Contract," the "Benefits at Annuity
Commencement Date" and the "Guaranteed Minimum Income Payments" provisions in
this prospectus.
Investments in the Subaccount vary with the investment performance of the Total
Return Fund. Over time, we transfer Purchase Payments invested in the Guarantee
Account or the Immediate Installment Account, PLUS any interest earned, to the
Subaccount.
Certain features described in this prospectus may vary from your contract.
Please refer to your contract for those benefits that apply specifically to you.
WHAT ARE THE GUARANTEED MINIMUM INCOME PAYMENTS? The contract offers you
guaranteed periodic annuity benefits that can protect against the adverse
results of poor Subaccount performance. If you make all Scheduled Installments
on time and pay back the amount of any partial withdrawal received from the
Subaccount with interest within one year of the partial withdrawal (but not
later than the Annuity Commencement Date selected at the time of application;
the Annuity Commencement Date must be a date at least 10 years from the date
the contract is issued), then we guarantee that no matter how the Subaccount
performs, each monthly Income Payment you receive will never be less than the
amount of the Guaranteed Minimum Income Payment.
Should you miss a Scheduled Installment, you may still meet the requirement for
making Scheduled Installments by paying: any missed Scheduled Installment(s),
including any interest, due on the missed Scheduled Installment(s).
The missed Scheduled Installment(s), including any interest due on the missed
Scheduled Installment(s), must be repaid within one year of the due date of the
missed Scheduled Installment(s), but not later than the Annuity Commencement
Date. The Annuity Commencement Date must be a date at least 10 years from the
date the contract is issued.
10
In addition, you may not make more than 24 Scheduled Installments over the life
of the contract outside of the grace period (the grace period is 30 days after
the date each Scheduled Installment is due) and still be eligible for your
Guaranteed Minimum Income Payments.
SHOULD YOU FAIL TO MEET THE CONDITIONS LISTED ABOVE, YOU MAY STILL BE ENTITLED
TO REDUCED GUARANTEED MINIMUM INCOME PAYMENTS PURSUANT TO A VESTING SCHEDULE
UNDER THE CONTRACT (SEE THE "GUARANTEED MINIMUM INCOME PAYMENTS" SECTION IN
THIS PROSPECTUS FOR ADDITIONAL INFORMATION). IF YOU DO NOT MEET THE CONDITIONS
LISTED ABOVE, AND YOU ARE NOT ENTITLED TO REDUCED GUARANTEED MINIMUM INCOME
PAYMENTS UNDER THE CONTRACT, YOU WILL LOSE YOUR RIGHT TO GUARANTEED MINIMUM
INCOME PAYMENTS.
WHAT HAPPENS IF THE RIGHT TO GUARANTEED MINIMUM INCOME PAYMENTS IS LOST? If
you do not maintain the right to Guaranteed Minimum Income Payments by meeting
the contractual requirements as outlined above:
(1) you remain subject to the Purchase Payment limitations under the
contract (i.e., you may not make payments in excess of all your original
Scheduled Installment amounts); and
(2) you will NOT have Guaranteed Minimum Income Payments when you annuitize
the contract.
WHAT ARE SCHEDULED INSTALLMENTS? When we issue the contract, you establish
your Annuity Commencement Date, (WHICH MUST BE A DATE AT LEAST 10 YEARS FROM
THE DATE THE CONTRACT IS ISSUED) and we will establish a schedule of monthly
payments to the Subaccount ("Scheduled Installments") during the Accumulation
Period. Once established, the amount and frequency of Scheduled Installments
cannot be changed. Once the contract is issued, your Annuity Commencement Date
may not be changed.
When you apply for a contract, you provide us with:
. the length of the Accumulation Period you desire. The Accumulation Period
must be at least 10 years;
. the minimum number of years (between 10 and 50, in five year increments)
for which you would like Income Payments to be made; and
. one of the following items of information:
. the amount of the Guaranteed Minimum Income Payment you want; or
. how much you want to pay per month and/or pay in a lump sum.
We use this information to establish your Scheduled Installments.
Your Annuity Commencement Date must be at least 10 years from the date your
contract is issued. However, you may elect to surrender your contract at any
time after the issue date and receive a lump sum payment, subject to a
surrender charge, any access charge and a Market Value Adjustment, if
applicable. After 12 months from the date the contract is issued, you may
surrender your contract and elect one of the Optional Payment Plans. If you
elect to surrender your contract, a surrender charge and any applicable access
charge will be assessed unless you a elect Optional Payment Plan 1, Optional
Payment Plan 2 (with a period certain of 10 or more years) or Optional Payment
Plan 5. Your surrender charges and any access charges will be waived if you
surrender your contract and apply the assets to Optional Payment Plan 1,
Optional Payment 2 (with a period certain of 10 or more years) or Optional
Payment Plan 5, however, you may still be subject to a Market Value Adjustment
if you have assets allocated to the Immediate Installment Account at the time
of surrender. If you elect to surrender your contract and apply the assets to
any Optional Payment Plan, you will lose all rights to Guaranteed Minimum
Income Payments under the contract. We will calculate any Surrender Value as of
the Valuation Day your request for surrender is received at our Home Office.
HOW DO I PAY THE SCHEDULED INSTALLMENTS? You may pay Scheduled Installments by
making:
. Scheduled Purchase Payments;
. Flexible Purchase Payments;
. transfers from another variable deferred annuity contract issued by
Genworth Life and Annuity Insurance Company (or one of its affiliated
companies) under an approved Annuity Cross Funding Program (not available
for contracts issued on or after August 17, 2004); or
. a combination thereof.
See the "Purchase Payments" and "Appendix -- Annuity Cross Funding Program"
provisions in this prospectus.
BY PAYING THE SCHEDULED PURCHASE PAYMENTS ON TIME, YOU ENSURE THAT THE
SCHEDULED INSTALLMENTS ARE MET AND YOUR RIGHT TO GUARANTEED MINIMUM INCOME
PAYMENTS IS NOT LOST.
YOU SHOULD NOT PURCHASE THE CONTRACT DESCRIBED IN THIS PROSPECTUS IF YOU
BELIEVE THAT YOU MAY NOT BE ABLE TO MAKE ALL OF THE SCHEDULED INSTALLMENTS.
MAY I PAY MY SCHEDULED PURCHASE PAYMENTS AUTOMATICALLY? You may use electronic
fund transfers to make your monthly Scheduled Purchase Payments. See "The
Contract" provision in this prospectus.
11
WHAT IS THE IMMEDIATE INSTALLMENT ACCOUNT, HOW DO FLEXIBLE PURCHASE PAYMENTS
WORK? The Immediate Installment Account is a non-unitized separate account
that we have established for the payment of future Immediate Installments.
Although we designed the contract as a Scheduled Purchase Payment contract, you
may make Flexible Purchase Payments subject to certain conditions. The amount
of each Flexible Purchase Payment must be greater than 6 Scheduled Purchase
Payments and be accompanied with sufficient transfer instructions in order for
us to allocate the Flexible Purchase Payment to the Immediate Installment
Account. We will allocate the Flexible Purchase Payment to the Guarantee
Account if we do not receive transfer instructions or we receive insufficient
transfer instructions from the Owner. Any Flexible Purchase Payment received
that is less than or equal to 6 times the Scheduled Purchase Payments will also
be automatically allocated to the Guarantee Account.
Amounts invested in the Immediate Installment Account earn interest at rates we
declare and guarantee at the time of purchase. Although the Immediate
Installment Account is a separate account, we assume the risk of investment
gain or loss on the Immediate Installment Account's assets. We transfer certain
amounts ("Immediate Installments") from the Immediate Installment Account to
the Subaccount on a monthly basis to make your Scheduled Installment or
supplement your Scheduled Purchase Payments in accordance with your
instructions. The amount transferred from the Immediate Installment Account to
the Subaccount will never exceed the amount of your Scheduled Installment MINUS
the amount of your Scheduled Purchase Payment. We will return to you any amount
in excess of what is needed to make all Scheduled Installments. The excess
amount will be returned to you within 7 days of our receipt.
Whether a transfer from the Immediate Installment Account makes your Scheduled
Installment or supplements your Scheduled Purchase Payment is dependent upon
the amount in the Immediate Installment Account and your transfer instructions
at the time the Flexible Purchase Payment is received. We determine the amount
of the Immediate Installment we transfer each month to the Subaccount on the
date the Flexible Purchase Payment is received accompanied with complete
transfer instructions. This amount depends on:
. the amount of your Flexible Purchase Payment;
. the rate of interest that we credit to the Flexible Purchase Payment; and
. the number of installments you choose.
Transfer instructions must include direction as to:
(1) whether the Flexible Purchase Payment is to be used to fully pay some or
all of your Scheduled Installments; or
(2) whether the Flexible Purchase Payment is to be used to lower the amount
of some or all of your Scheduled Purchase Payments.
Any partial withdrawals or surrenders from the Immediate Installment Account
are subject to a Market Value Adjustment and an access charge. A Market Value
Adjustment can increase or decrease the amounts partially withdrawn or
surrendered from the Immediate Installment Account depending on current
interest rate fluctuations. A Market Value Adjustment (and access charge) is
not taken for amounts transferred from the Immediate Installment Account to the
Subaccount for purposes of making a Scheduled Installment.
WHAT IS THE VARIABLE ACCOUNT? The Variable Account is a segregated asset
account established under Virginia insurance law, and registered with the SEC
as a unit investment trust. We allocate the assets of the Variable Account to
the Subaccount that invests in the Total Return Fund. We do not charge the
assets in the Variable Account with liabilities arising out of any other
business we may conduct. Amounts you allocate to the Variable Account will
reflect the investment performance of the Total Return Fund. You bear the risk
of investment gain or loss. See "The Variable Account" provision in this
prospectus.
IS THE CONTRACT AVAILABLE AS A QUALIFIED CONTRACT OR A NON-QUALIFIED
CONTRACT? We designed the contract for use in connection with certain types of
retirement plans that receive favorable treatment under the Code ("Qualified
Contracts"). Qualified retirement plans provide their own tax deferral benefit,
so there should be another reason for you to purchase the contract, aside from
tax deferral. Please consult a tax adviser to determine whether this contract
is an appropriate investment for the qualified retirement plan. This contract
is also available in connection with retirement plans that do not qualify for
such favorable treatment under the Code. Such contracts are referred to
throughout this prospectus as "Non-Qualified Contracts." The information
regarding the tax treatment of the contracts generally applies to Non-Qualified
Contracts. Different rules and regulations may apply to contracts issued as
Qualified Contracts. Please consult a qualified tax adviser for additional
information.
WHAT SURRENDER AND ACCESS CHARGES ARE ASSOCIATED WITH THE CONTRACT? If you
surrender your contract or take partial withdrawals before your Annuity
Commencement Date, we may assess a surrender and/or access charge.
. For amounts partially withdrawn or surrendered from the Subaccount and/or
the Guarantee Account, we will
12
assess a surrender charge. We will determine this charge by assuming that
the amount being withdrawn on the date of the partial withdrawal or
surrender comes entirely from Scheduled Installments made to date and not
previously withdrawn (withdrawals repaid within 12 months are not
considered withdrawals for purposes of the surrender charge calculation).
Depending upon the Contract Year of your surrender or partial withdrawal,
the surrender charge will be anywhere from 9% to 1% of the lesser of:
(1) Scheduled Installments made to date and not previously withdrawn
(withdrawals repaid within 12 months are not considered withdrawals
for purposes of the surrender charge calculation); and
(2) the amount withdrawn.
. For amounts partially withdrawn or surrendered from the Immediate
Installment Account, we will assess an access charge. This charge will be
anywhere from 6% to 1% of the Immediate Installment Account Value
withdrawn depending on the duration of the remaining Immediate
Installments. In addition, we will apply a Market Value Adjustment to
determine the Immediate Installment Account Value and the amount available
for a partial withdrawal or surrender from the Immediate Installment
Account.
We may waive the surrender and/or access charges if you apply your Contract
Value upon surrender to certain available Optional Payment Plans. See the
"Charges and Other Deductions" provision in this prospectus.
ARE THERE ANY OTHER CHARGES? We assess a daily charge, equal to an effective
annual rate of 1.50%, against the average daily net assets of the Subaccount.
This charge consists of a 0.15% administrative expense charge and a 1.35%
mortality and expense risk charge.
If your state assesses a premium tax with respect to your contract, then at the
time we incur the tax (or at such other time as we may choose), we will deduct
these amounts from Purchase Payments or the Contract Value, as applicable.
See the "Charges and Other Deductions" and the "Deductions for Premium Taxes"
provisions in this prospectus.
The Total Return Fund also has certain expenses. These include management fees,
as well as 12b-1 fees or service share fees, and other expenses associated with
its daily operations. See the "Fee Tables" provision in this prospectus. These
expenses are more fully described in the prospectus for the Total Return Fund.
There are various charges assessed for rider options. The maximum charge for
each Optional Rider is listed in the "Fee Tables" provision in this prospectus.
For additional information, see the "Optional Riders" provision in the "The
Contract" section of this prospectus.
For a complete discussion of all charges associated with the contract, see the
"Charges and Other Deductions" provision in this prospectus.
We pay compensation to broker-dealers who sell the contracts. For a discussion
of this compensation, see the "Sales of the Contract" provision in this
prospectus.
HOW DO YOU CALCULATE MY MONTHLY INCOME PAYMENTS? We will pay you a monthly
income for life with a guaranteed minimum period beginning on the Annuity
Commencement Date, provided the Annuitant is still living. The amount of your
Income Payments depends on:
. your Contract Value;
. whether you are receiving Guaranteed Minimum Income Payments;
. the age and gender of the Annuitant(s); and
. the specific payment plan you choose.
See the "Benefits at Annuity Commencement Date" provision in this prospectus.
WHAT HAPPENS IF AN OWNER DIES BEFORE THE ANNUITY COMMENCEMENT DATE? If any
Owner dies before the Annuity Commencement Date while the contract is in force,
the Joint Owner, if any, becomes the sole Owner of the contract. If there is no
Joint Owner, the Designated Beneficiary becomes the sole Owner of the contract.
Certain distribution rules imposed by Federal tax law also will apply. However,
spouses who are Designated Beneficiaries and not Joint Annuitants are not
permitted spousal continuation under the contract. Under such circumstances,
the distribution rules for non-spousal beneficiaries will apply. We may pay a
Death Benefit to the Designated Beneficiary. See "The Death Benefit" provision
in this prospectus.
MAY I SURRENDER THE CONTRACT OR TAKE A PARTIAL WITHDRAWAL? You may surrender
the contract for its Surrender Value at any time before the Annuity
Commencement Date. In addition, you may take partial withdrawals of at least
$100 from Contract Value. If you surrender the contract or take a partial
withdrawal, we may assess a surrender and/or access charge. Partial withdrawals
will be made first from the Guarantee Account, then the Immediate Installment
Account, and finally, the Subaccount, unless you request otherwise.
13
You may also surrender your contract on the Annuity Commencement Date for the
Contract Value as of that Valuation Day, but without any surrender and/or
access charges. In order to receive the lump sum payment, you must notify us,
in writing, at our Home Office of your intent to receive a lump sum payment on
the Annuity Commencement Date within at least 10 business days and not more
than 90 days prior to the Annuity Commencement Date. You will lose any
Guaranteed Minimum Income Payments upon the Annuity Commencement Date if you
elect to receive a lump sum payment. You may be subject to income tax, and a
10% IRS penalty tax if you are younger than age 59 1/2 at the time of the
partial withdrawal or surrender. A surrender or a partial withdrawal may also
be subject to income tax withholding. In addition, taking a lump sum payment in
lieu of Income Payments may have adverse tax consequences. See the "Federal Tax
Matters" provision in this prospectus.
You must repay the amount of each partial withdrawal from the Subaccount
(including any interest on the amount received at an effective annual rate of
6%), within one year of the partial withdrawal, but no later than the Annuity
Commencement Date to retain your eligibility to receive Guaranteed Minimum
Income Payments, unless you meet the requirements for reduced Guaranteed
Minimum Income Payments pursuant to a vesting schedule. Interest will be
assessed from the date of the partial withdrawal to the date we receive full
repayment.
If you repay the amount of each partial withdrawal received from the Subaccount
within 12 months of the partial withdrawal, we will reimburse the Subaccount in
the amount of the surrender charge we assessed when you made the partial
withdrawal. The reimbursed amount will come from the assets of our General
Account. Such amounts will be allocated to the Subaccount on the Valuation Day
your repayment of the partial withdrawal is received. If your repayment of the
partial withdrawal is received on a day when the New York Stock Exchange is not
open or the Portfolio is not valuing its shares, we will allocate your
repayment to the Subaccount on the next Valuation Day. Because of this
reimbursement, all subsequent amounts distributed from the Subaccount will be
subject to a surrender charge.
For example:
Assume you have made Scheduled Installments of $18,000 during the first
Contract Year and your Contract Value is $20,000 (all of which is allocated to
the Subaccount) and you then request to take a partial withdrawal of $10,000
on May 1, 2010.
You will receive $9,100 assuming no premium taxes or income taxes are
withheld. A surrender charge of $900 ($10,000 x 9%) will be withheld by us. To
reinstate your Guaranteed Minimum Income Payment, you must pay to us $9,100
PLUS interest at a rate of 6% before May 1, 2011 (in addition to paying your
regularly Scheduled Installments).
On August 1, 2010 you repay $5,000 PLUS interest on the $9,100 received in
May. We will then allocate to the Subaccount your $5,000 PLUS $494.51 ($900 x
$5,000/$9100). Then on December 1, 2010 you repay the remaining $4,100 PLUS
interest on the $9,100 received in May. We will then allocate to the
Subaccount your $4,100 PLUS $405.49 ($900 x $4100/$9100).
Partial withdrawals from the Immediate Installment Account or Guarantee Account
do not have to be repaid to receive your Guaranteed Minimum Income Payment, but
you may have to increase the amount of your Scheduled Purchase Payments since
amounts withdrawn from those accounts will not be available for Scheduled
Installments.
In addition, partial withdrawals may reduce your Death Benefit. See "The Death
Benefit" provision in this prospectus.
For more information on surrenders and partial withdrawals, see the "Surrenders
and Partial Withdrawals" provision in this prospectus.
DO I HAVE A RETURN PRIVILEGE? Yes. You have the right to return the contract
to us at our Home Office at the address listed on page 2 of this prospectus
within a certain number of days (usually 10 days from the date you receive the
contract, but some states require different periods) and we will cancel the
contract.
If you exercise this right, we will cancel the contract as of the Valuation Day
we receive it. Upon receipt of such information, we will send you a refund
equal to your Contract Value, PLUS or MINUS any applicable Market Value
Adjustment, PLUS any deductions we have made from your Purchase Payments before
their allocation to the contract. Or, if required by the law of your state, we
will refund your Purchase Payments (less any partial withdrawals previously
taken).
ARE THERE OPTIONAL BENEFITS AVAILABLE UNDER THE CONTRACT? Optional benefits
are available by purchasing one or more of the following riders with the
contract. Not all of the rider options listed below may be available in all
states. In addition, the riders are not available to fully funded contracts or
to contracts that were issued through an Annuity Cross Funding Program. The
riders are:
. the Disability Benefit Rider Option;
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. the Joint Annuitant Life Benefit Rider Option; and
. the Unemployment Benefit Rider Option.
See "The Contract" and the "Appendix -- Annuity Cross Funding Program"
provisions in this prospectus for additional information.
WHAT ARE THE FEDERAL TAX IMPLICATIONS OF MY INVESTMENT IN THE
CONTRACT? Generally, all investment earnings under the contract are
tax-deferred until withdrawn or until Income Payments begin. A distribution
from the contract, which includes a full surrender or a partial withdrawal, or
a payment of a death benefit, will generally result in taxable income if there
has been an increase in Contract Value. In certain circumstances, a 10% IRS
penalty tax may also apply. All amounts includable in income with respect to
the contract are taxed as ordinary income; no amounts are taxed at the special
lower rates applicable to long term capital gains and corporate dividends. See
the "Federal Income Tax Matters" provision in this prospectus.
INVESTMENT RESULTS
At times, the Variable Account may present its investment results or compare
its investment results to various unmanaged indices or other variable annuities
in reports to beneficial shareholders, sales literature, and advertisements. We
will calculate the results on a total return basis for various periods, with or
without surrender charges, and assuming Variable Account charges. Results
calculated without surrender charges will be higher.
Total returns assume an initial investment of $1,000 and include the
reinvestment of all dividends and capital gains of the Total Return Fund, the
Total Return Fund's charges and expenses (including 12b-1 fees and/or service
share fees), and other charges associated with the contract, including the
mortality and expense risk charges and the administrative expense charge.
Standardized total returns also reflect surrender charges and a maximum one
month charge for the optional riders. Non-standardized returns do not reflect
charges for the optional riders. Premium taxes are not reflected in any of the
calculations, but may apply.
THE COMPANY
We are a stock life insurance company operating under a charter granted by the
Commonwealth of Virginia on March 21, 1871. We principally offer life insurance
policies and annuity contracts. We do business in 49 states, the District of
Columbia and Bermuda. Our principal offices are located at 6610 West Broad
Street, Richmond, Virginia 23230. We are obligated to pay all amounts promised
under the contract.
Capital Brokerage Corporation serves as principal underwriter for the contracts
and is a broker/dealer registered with the SEC. Genworth North America
Corporation (formerly, GNA Corporation) directly owns the stock of Capital
Brokerage Corporation and the Company. Genworth North America Corporation is
directly owned by Genworth Financial, Inc., a public company.
We are a charter member of the Insurance Marketplace Standards Association
("IMSA"). We may use the IMSA membership logo and language in our
advertisements, as outlined in IMSA's Marketing and Graphics Guidelines.
Companies that belong to IMSA subscribe to a set of ethical standards covering
the various aspects of sales and service for individually sold life insurance
and annuities.
FINANCIAL CONDITION OF THE COMPANY
Many financial services companies, including insurance companies, continue to
face challenges in this unprecedented market environment, and we are not immune
to those challenges. We know it is important for you to understand how this
market environment may impact your Contract Value and our ability to meet the
guarantees under your contract.
ASSETS IN THE VARIABLE ACCOUNT. You assume all of the investment risk for
amounts allocated to the Subaccount. Your value in the Subaccount is part of
the assets of the Variable Account. These assets may not be charged with
liabilities arising from any other business that we may conduct. The assets of
the Variable Account will, however, be available to cover the liabilities of
our General Account to the extent that the Variable Account assets exceed the
Variable Account liabilities arising under the contracts supported by it. This
means that, with very limited exceptions, all assets in the Variable Account
attributable to you and that of all other contract owners would receive a
priority of payment status over other claims in the event of an insolvency or
receivership. See "The Variable Account" provision below.
ASSETS IN THE IMMEDIATE INSTALLMENT ACCOUNT. You are permitted to make
allocations to the Immediate Installment Account. The Immediate Installment
Account has characteristics like the Variable Account and the Guarantee
Account. Like the Guarantee Account, you do not directly or indirectly share in
the investment performance of the Immediate Installment Account. You are
guaranteed a level monthly interest rate. If you do not take an early
withdrawal or surrender from the contract, you do not assume the investment
risk for amounts allocated to the Immediate Installment Account. However, if
you do take an early withdrawal or surrender from your contract, any assets
allocated to the Immediate Installment Account will be subject to a market
value adjustment. Like the
15
Variable Account, assets in the Immediate Installment Account may not be
charged with liabilities arising from any other business that we may conduct.
The assets in the Immediate Installment Account will be available to cover the
liabilities of our General Account to the extent that the Immediate Installment
Account assets exceed the liabilities arising under the contracts supported by
it. This means that, with very limited exceptions, all assets in the Immediate
Installment Account attributable to you and that of all other contract owners
would receive a priority of payment status over other claims in the event of an
insolvency or receivership. See "The Immediate Installment Account" provision.
ASSETS IN THE GENERAL ACCOUNT. You are permitted to make allocations to the
Guarantee Account, which is part of our General Account. In addition, any
guarantees under the contract that exceed your Contract Value, such as those
associated with the Guaranteed Minimum Income Payments, are paid from our
General Account (not the Variable Account and Immediate Installment Account).
Therefore, any amounts that we may pay under the contract in excess of the
value in the Variable Account are subject to our financial strength and
claims-paying ability and our long-term ability to make such payments. We issue
other types of insurance policies and financial products as well, such as group
variable annuities offered through retirement plans, term and universal life
insurance, Medicare supplement insurance, funding agreements, funding
agreements backing notes and guaranteed investment contracts ("GICs"), and we
also pay our obligations under these products from our assets in the General
Account. In the event of an insolvency or receivership, payments we make from
our General Account to satisfy claims under the contract would generally
receive the same priority as our other policy holder obligations. This means
that in the event of an insolvency or receivership, you may receive only a
portion, or none, of the payments you are due under the contract. See "The
Guarantee Account" provision.
OUR FINANCIAL CONDITION. As an insurance company, we are required by state
insurance regulation to hold a specified amount of reserves in order to meet
all the contractual obligations of our General Account to our contract owners.
In order to meet our claims-paying obligations, we regularly monitor our
reserves to ensure we hold sufficient amounts to cover actual or expected
contract and claims payments. In addition, we actively hedge our investments in
our General Account, while also requiring contract owners to allocate purchase
payments to a prescribed investment option. However, it is important to note
that there is no guarantee that we will always be able to meet our claims
paying obligations, and that there are risks to purchasing any insurance
product.
State insurance regulators also require insurance companies to maintain a
minimum amount of capital, which acts as a cushion in the event that the
insurer suffers a financial impairment, based on the inherent risks in the
insurer's operations. These risks include those associated with losses that we
may incur as the result of defaults on the payment of interest or principal on
our General Account assets, which include, but are not limited to, bonds,
mortgages, general real estate investments, and stocks, as well as the loss in
value of these investments resulting from a loss in their market value.
The market effects on our investment portfolio have caused us to re-evaluate
product offerings. We are continuing to evaluate our investment portfolio to
mitigate market risk and actively manage the investments in the portfolio.
HOW TO OBTAIN MORE INFORMATION. We encourage both existing and prospective
contract owners to read and understand our financial statements. We prepare our
financial statements on both a statutory basis and according to Generally
Accepted Accounting Principles ("GAAP"). Our audited GAAP financial statements,
as well as the financial statements of the Variable Account, are located in the
Statement of Additional Information. If you would like a free copy of the
Statement of Additional Information, call (800) 352-9910 or write to our Home
Office at the address listed on page 1 of this prospectus. In addition, the
Statement of Additional Information is available on the SEC's website at
http://www.sec.gov. You may obtain our audited statutory financial statements
and any unaudited statutory financial statements that may be available by
visiting our website at www.genworth.com.
You also will find on our website information on ratings assigned to us by one
or more independent rating organizations. These ratings are opinions of an
operating insurance company's financial capacity to meet the obligations of its
insurance and annuity contracts based on its financial strength and/or
claims-paying ability.
THE VARIABLE ACCOUNT
We established the Variable Account as a separate investment account on August
19, 1987. The Variable Account may invest in mutual funds, unit investment
trusts, managed separate accounts, and other portfolios. We use the Variable
Account to support the contract as well as for other purposes permitted by law.
Currently, only one Subaccount of the Variable Account is available for
investment under the contract. The Subaccount invests exclusively in shares of
the GE Investments Funds, Inc. -- Total Return Fund. For contracts issued on or
after May 1, 2006, the Subaccount invests in the Total Return Fund --Class 3
shares. For contracts issued before May 1, 2006, the Subaccount invests in the
Total Return Fund -- Class 1 shares. Other variable investment options may be
16
available if you are participating in the Annuity Cross Funding Program. See
the "Appendix -- Annuity Cross Funding" provision in this prospectus.
The assets of the Variable Account belong to us. Nonetheless, we do not charge
the assets in the Variable Account with liabilities arising out of any other
business which we may conduct. The assets of the Variable Account will,
however, be available to cover the liabilities of our General Account to the
extent that the assets of the Variable Account exceed its liabilities arising
under the contracts supported by it. Income and both realized and unrealized
gains or losses from the assets of the Variable Account are credited to or
charged against the Variable Account without regard to the income, gains, or
losses arising out of any other business we may conduct.
We registered the Variable Account with the SEC as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"). The Variable Account
meets the definition of a separate account under the federal securities laws.
Registration with the SEC does not involve supervision of the management or
investment practices or policies of the Variable Account by the SEC. You assume
the full investment risk for all amounts you allocate to the Variable Account.
If permitted by law, we may deregister the Variable Account under the 1940 Act
in the event registration is no longer required, manage the Variable Account
under the direction of a committee, or combine the Variable Account with one of
our other separate accounts. Further, to the extent permitted by applicable
law, we may transfer the assets of the Variable Account to another separate
account.
THE SUBACCOUNT AND THE TOTAL RETURN FUND
The Subaccount of the Variable Account offered in the contract invests in
shares of the Total Return Fund, which is registered with the SEC under the
1940 Act as an open-end management investment company. GE Investments Funds,
Inc. adopted a multiple class plan for the Total Return Fund effective May 1,
2006. Under the multiple class plan, all shares of the Total Return Fund
outstanding on May 1, 2006 were redesignated as Class 1 shares and will remain
the investment option for the Subaccount for contracts issued before May 1,
2006. For contracts issued on or after May 1, 2006, the Subaccount will invest
in Class 3 shares.
BEFORE INVESTING IN THE CONTRACT, CAREFULLY READ THE PROSPECTUS FOR THE TOTAL
RETURN FUND ALONG WITH THIS PROSPECTUS. YOU MAY OBTAIN THE MOST RECENT
PROSPECTUS FOR THE TOTAL RETURN FUND BY CALLING US AT (800) 352-9910, OR
WRITING US AT 6610 WEST BROAD STREET, RICHMOND, VIRGINIA 23230. You may also
obtain copies of the prospectus for the Total Return Fund on our website at
www.genworth.com and click on "Products." We summarize the investment objective
of the Total Return Fund in the following paragraph. There is no assurance that
the Total Return Fund will meet this objective. We do not guarantee any minimum
value for the amounts allocated to the Variable Account. You bear the
investment risk of investing in the Total Return Fund.
The investment objective and adviser to the Total Return Fund is as follows:

INVESTMENT OBJECTIVE ADVISER
-------------------------------------------------------------------------
Seeks the highest total return, GE Asset Management Incorporated
composed of current income and
capital appreciation, as is consistent
with prudent investment risk.
-------------------------------------------------------------------------

We will purchase shares of the Total Return Fund at net asset value and direct
them to the Subaccount. We will redeem sufficient shares of the Total Return
Fund at net asset value to pay death proceeds, surrender proceeds, and partial
withdrawals, to make Income Payments, or for other purposes described in the
contract. We automatically reinvest all dividend and capital gain distributions
of the Total Return Fund in shares of the Total Return Fund at its net asset
value on the date of distribution. In other words, we do not pay dividends or
capital gains of the Total Return Fund to Owners as additional units, but
instead reflect them in unit values.
We have entered into an agreement with GE Investments Funds, Inc.
(participation agreement) setting forth the terms and conditions pursuant to
which we purchase and redeem shares of the Total Return Fund. The discussion
that follows reflects the terms of the current agreement. Shares of the Total
Return Fund are not sold directly to the general public. They are sold to us,
and may be sold to other insurance companies that issue variable annuity
contracts and variable life insurance policies. In addition, they may be sold
directly to qualified pension and retirement plans. Subject to certain
exceptions, GE Investments Funds, Inc. and its principal underwriter may reject
any order to purchase shares of any class of the Total Return Fund.
A potential for certain conflicts exists between the interests of Owners and
owners of variable life insurance policies issued by us or owners of variable
life insurance policies or variable annuity contracts issued by other insurance
companies who may invest in the Total Return Fund. A potential for certain
conflicts would also exist between the interests of any of these investors and
participants in a qualified pension or retirement plan that might invest in the
Total Return Fund. To the extent that such classes of investors are invested in
the Total Return Fund when a conflict of interest arises that might involve the
Fund, one or more such classes of investors could be disadvantaged. GE
Investments Funds, Inc. currently does not foresee any such
17
disadvantage to Owners. Nonetheless, the Board of Directors of GE Investments
Funds, Inc. monitors the Total Return Fund for the existence of any
irreconcilable material conflicts of interest. If such a conflict affecting
Owners is determined to exist, we will, to the extent reasonably practicable,
take such action as is necessary to remedy or eliminate the conflict. If such a
conflict were to occur, the Subaccount might be required to withdraw its
investment in the Total Return Fund and substitute shares of a different mutual
fund. This might force the Total Return Fund to sell its portfolio securities
at a disadvantageous price.
We have entered into an Administrative Service Agreement with GE Asset
Management Incorporated ("GEAM") to compensate us for providing services in the
nature of "personal services and/or maintenance of shareholder accounts" as
referenced in NASD Conduct Rule 2830(b)(9) and certain other administrative
services delineated therein relating to the Total Return Fund. GEAM has agreed
to pay us an amount equal to 0.076% (for Class 1 shares) and 0.05% (for Class 3
shares) of the average daily net assets of the Variable Account invested in the
Total Return Fund on an annual basis. Payments of these amounts is not an
additional charge to you by the Total Return Fund or by us, but is paid from
GEAM out of its own resources.
With regard to Class 1 and Class 3 shares of the Total Return Fund, GE
Investments Funds, Inc. has adopted separate Class 1 and Class 3 Investor
Service Plans (the "Service Plans") pursuant to which the Total Return Fund may
compensate us for performing certain investor services specified in the Service
Plans necessary to administer the contracts (including account maintenance,
record-keeping, and other administrative services) and to facilitate GE
Investments Funds, Inc.'s provision of services to investors in the Total
Return Fund. Pursuant to separate Investor Services Agreements related to the
Service Plans, GE Investments Funds, Inc. pays us for such services at an
annual rate not to exceed 0.20% of the average daily net assets of the Total
Return Fund attributable to Class 1 and Class 3 shares.
With regard to the Total Return Fund -- Class 3 shares, pursuant to Rule 12b-1
under the 1940 Act, the Board of Directors of GE Investments Funds, Inc.
adopted a Distribution and Service (12b-1) Plan (the "Distribution Plan")
pursuant to which the Total Return Fund may compensate Capital Brokerage
Corporation for performing certain services and incurring certain expenses in
promoting and distributing Class 3 shares of the Fund. Pursuant to a
distribution agreement between the GE Investment Funds, Inc. and its principal
underwriter and an agreement between such principal underwriter and Capital
Brokerage Corporation, the Total Return Fund pays Capital Brokerage Corporation
for such services at a maximum annual rate of 0.25% of the average daily net
assets of the Variable Account invested in Class 3 shares of the Total Return
Fund. In addition, the Distribution Plan covers payments made under the Class 3
Investor Service Plan (as described above) in the event that any portion of
compensation paid pursuant to the Class 3 Investor Service Plan is determined
to be an indirect use of the assets attributable to the Class 3 shares to
finance distribution of such shares. The Distribution Plan and the related
agreements, as each may be amended from time to time, were effective May 1,
2006.
In addition to the asset-based payments for administrative and other services
described above, GEAM may also pay us, or our affiliate Capital Brokerage
Corporation, to participate in periodic sales meetings, for expenses relating
to the production of promotional sales literature and for other expenses or
services. The amount paid to us, or our affiliate Capital Brokerage
Corporation, may be significant. Payments to participate in sales meetings may
provide GEAM with greater access to our internal and external wholesalers to
provide training, marketing support and educational presentations.
VOTING RIGHTS
As required by law, we will vote shares of the Total Return Fund held in the
Variable Account at special shareholder meetings based on instructions from
you. However, if the law changes and we are allowed to vote in our own right,
we may elect to do so.
Whenever the Total Return Fund calls a shareholder meeting, Owners will be
notified of issues requiring the shareholders' vote as soon as possible before
the shareholder meeting. Each person having a voting interest in the Total
Return Fund will receive proxy voting materials, reports, other materials, and
a form with which to give us voting instructions.
We will determine the number of votes which you have the right to cast by
applying your percentage interest in a Subaccount to the total number of votes
attributable to the Subaccount. In determining the number of votes, we will
recognize fractional shares.
We will vote shares of the Total Return Fund for which no instructions are
received (or instructions are not received timely) in the same proportion as
those that are received. We will apply voting instructions to abstain on any
item to be voted on a pro-rata basis to reduce the number of votes eligible to
be cast.
This type of voting, often referred to as "proportional voting," permits all
Owners in this contract, as well as contract owners from other variable annuity
contracts and variable life insurance policies who have assets allocated to
subaccounts which invest in the Total Return Fund ("Beneficial Shareholders")
to participate in the voting process.
Proportional voting does not require a predetermined number of votes for a
quorum and if the majority Beneficial Shareholders
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do not participate in the voting process, minority Beneficial Shareholders can
determine the result.
Since the Total Return Fund may engage in shared funding, other persons or
entities besides us may vote shares of the of Total Return Fund.
CHANGES TO THE VARIABLE ACCOUNT AND THE SUBACCOUNT
We reserve the right, within the law, to make additions, deletions and
substitutions for the Total Return Fund. We may substitute shares of other
portfolios for shares already purchased, or to be purchased in the future,
under the contract. This substitution might occur if shares of the Total Return
Fund should no longer be available, or if investment in the Total Return Fund
should become inappropriate for the purposes of the contract, in the judgment
of our management. The new portfolio may have higher fees and charges than the
Total Return Fund and not all portfolios may be available to all classes of
contracts. Currently, we have no intention of substituting or deleting the
current investment option, however, we reserve our right to do so should the
current investment option become inappropriate to maintain the guarantees under
the contract. We will only substitute the current investment with an equity
based investment option should we exercise our right to substitute the current
investment option in the future. No substitution or deletion will be made to
the contract without prior notice to you and before any necessary approval of
the SEC in accordance with the 1940 Act.
We also reserve the right to establish additional subaccounts, each of which
would invest in a separate portfolio of GE Investments Funds, Inc., or in
shares of another investment company, with a specified investment objective. We
may also eliminate one or more subaccounts if, in our sole discretion,
marketing, tax, or investment conditions warrant. We will not eliminate a
subaccount without prior notice to you and before any necessary approval of the
SEC. Not all subaccounts may be available to all classes of contracts.
If permitted by law, we may create new variable accounts; deregister the
Variable Account under the 1940 Act in the event such registration is no longer
required; manage the Variable Account under the direction of a committee; or
combine the Variable Account with one of our other separate accounts. Further,
to the extent permitted by applicable law, we may transfer the assets of the
Variable Account to another separate account.
THE SUBACCOUNT -- POLICIES AND PROCEDURES
We have not adopted policies and procedures with regard to frequent trading for
this product. This product is unique compared to other variable annuity
products because it only has one Subaccount investing in one Portfolio and
transfers to that Subaccount may only be made at a prescribed period for a
prescribed amount.
In order to receive your Guaranteed Minimum Income Payments, you must make all
required Scheduled Installments to the Subaccount. Scheduled Installments may
only be made on the Monthly Due Date and only in an amount predetermined at the
time the contract is issued. You may not transfer assets from the Subaccount to
the Immediate Installment Account or the Guarantee Account. See "The
Contract -- Purchase Payments" provision in this prospectus for more
information.
The Total Return Fund may refuse Purchase Payments for any reason. In such
case, if we cannot make the purchase request on the date of your Scheduled
Installment, your Scheduled Installment will be made on the next Valuation Day.
THE GUARANTEE ACCOUNT AND THE IMMEDIATE INSTALLMENT ACCOUNT
THE GUARANTEE ACCOUNT
Amounts in the Guarantee Account are held in, and are part of, our General
Account. The General Account consists of our assets other than those allocated
to the Variable Account and our other separate accounts. Subject to statutory
authority, we have sole discretion over the investment of assets of the General
Account. The assets in the General Account are chargeable with liabilities
arising out of any business we may conduct.
Due to certain exemptive and exclusionary provisions of the federal securities
laws, we have not registered interests in the Guarantee Account under the
Securities Act of 1933 (the "1933 Act"), and we have not registered either the
Guarantee Account or our General Account as an investment company under the
1940 Act. Accordingly, neither the interests in our Guarantee Account nor our
General Account are generally subject to regulation under the 1933 Act or the
1940 Act. Disclosures, or lack thereof, relating to the interests in the
Guarantee Account and the General Account, however, may be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy of statements made in a registration statement.
We allocate Scheduled Purchase Payments received in advance of the Monthly Due
Date to the Guarantee Account. We then will transfer the required amount to
fund the Scheduled Installment to the Subaccount as of the Monthly Due Date.
We allocate any Flexible Purchase Payment received that is equal to or less
than 6 times the amount of the Scheduled
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Purchase Payment to the Guarantee Account. We also allocate Flexible Purchase
Payments that we receive with insufficient transfer instructions to the
Guarantee Account. Insufficient transfer instructions include when you do not
tell us whether you want your Flexible Purchase Payment to:
(1) lower the amount of the Scheduled Purchase Payment you must make each
month; or
(2) completely prepay a certain number or all of your remaining Scheduled
Installments.
The Flexible Purchase Payment will remain in the Guarantee Account and earn
interest until we receive your instructions concerning the method of transfer.
Once we have these instructions, we will establish a schedule of Immediate
Installments and transfer your Flexible Purchase Payment from the Guarantee
Account to the Immediate Installment Account. See "The Contract" provision in
this prospectus.
We determine the interest rates credited to assets in the Guarantee Account at
our sole discretion. The determination made will be influenced by, but not
necessarily correspond to, interest rates available on fixed income investments
which we may acquire with the amounts we receive as Purchase Payments or
transfers of assets under the contracts. You will have no direct or indirect
interest in these investments. We also will consider other factors in
determining interest rates for a guarantee period including, but not limited
to, regulatory and tax requirements, sales commissions and administrative
expenses borne by us, general economic trends, and competitive factors. Amounts
you allocate to the Guarantee Account will not share in the investment
performance of our General Account. WE CANNOT PREDICT OR GUARANTEE THE LEVEL OF
INTEREST RATES IN THE FUTURE, HOWEVER, THE INTEREST RATES CREDITED WILL BE AT
LEAST THE GUARANTEED INTEREST RATE SHOWN IN YOUR CONTRACT.
THE IMMEDIATE INSTALLMENT ACCOUNT
Due to certain exclusionary provisions of the federal securities laws, we have
not registered the Immediate Installment Account as an investment company under
the 1940 Act. Accordingly, the Immediate Installment Account is not generally
subject to regulation under the 1940 Act. However, we have registered interests
in the Immediate Installment Account under the 1933 Act, and disclosures
relating to the interests in the Immediate Installment Account are subject to
the provisions of that Act.
The Immediate Installment Account is a non-unitized separate account that we
have established for the payment of future Immediate Installments. Provided we
have sufficient direction from you to do so, we commit to make all future
Immediate Installments at the time we accept your Flexible Purchase Payment and
place that Flexible Purchase Payment into the Immediate Installment Account.
The assets of the Immediate Installment Account equal, at the least, the
reserves and other contract liabilities supported by the Immediate Installment
Account. Like the Variable Account, but unlike the Guarantee Account, we do not
charge the assets in the Immediate Installment Account with liabilities arising
out of any other business which we may conduct. The assets of the Immediate
Installment Account will, however, be available to cover the liabilities of our
General Account to the extent that the assets of the Immediate Installment
Account exceed its liabilities arising under the contracts supported by it.
Income and both realized and unrealized gains or losses from the assets of the
Immediate Installment Account are credited to or charged against the Immediate
Installment Account without regard to the income, gains, or losses arising out
of any other business we may conduct.
For each Flexible Purchase Payment allocated to the Immediate Installment
Account, we calculate a level monthly interest rate. The level monthly interest
rate is the single rate at which the present value of the Immediate
Installments generated equals the Flexible Purchase Payment less any premium
tax. The level monthly interest rate may be different for each Flexible
Purchase Payment made.
We have no specific formula for determining the level monthly interest rate.
Our determination may be influenced by, but not necessarily correspond to,
interest rates available on fixed income investments that we may acquire with
the amounts we receive as Flexible Purchase Payments under the contract. We
will invest these amounts primarily in investment-grade fixed income securities
including, but not limited to:
. securities issued by the U.S. Government or its agencies or
instrumentalities -- such securities may or may not be guaranteed by the
U.S. Government;
. debt securities that have an investment grade, at the time of purchase,
within the four highest grades assigned by Moody's Investor Services,
Inc., Standard & Poor's Corporation, or any other nationally recognized
rating service;
. mortgage-backed securities collateralized by real estate mortgage loans,
or securities collateralized by other assets, that are insured or
guaranteed by the Federal Home Loan Mortgage Association, the Federal
National Mortgage Association, or the Government National Mortgage
Association, or that have an investment grade at the time of purchase
within the four highest grades described above; and
. other debt instruments, commercial paper, cash or cash equivalents.
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You will have no direct or indirect interest in these investments, and you do
not share in the investment performance of the assets of the Immediate
Installment Account. We also will consider other factors in determining the
interest we credit on amounts allocated to the Immediate Installment Account
including:
. regulatory and tax requirements;
. sales commissions;
. administrative expenses borne by us;
. general economic trends; and
. competitive factors.
Our management will make the final determination on the interest we credit. We
cannot predict or guarantee the level of future interest rates. However, once
an interest rate has been declared and your payment is invested in the
Immediate Installment Account, that interest rate is guaranteed until the
entire amount of that Flexible Purchase Payment has been transferred to the
Subaccount through Immediate Installments or withdrawn from the Immediate
Installment Account. You may call us at any time to obtain the current rate of
interest applied to Flexible Purchase Payments allocated to the Immediate
Installment Account. The rate of interest a Flexible Purchase Payment receives
will be disclosed on your confirmation statement.
A Market Value Adjustment can increase or decrease the amounts surrendered or
partially withdrawn from the Immediate Installment Account depending on current
interest rate fluctuations. A Market Value Adjustment is not taken for amounts
transferred from the Immediate Installment Account to the Subaccount for
purposes of making a Scheduled Installment. When current interest rates are
higher than the interest rate declared for your Flexible Purchase Payment(s), a
Market Value Adjustment would reduce the value of the amount distributed. When
current interest rates are lower than the interest rate declared for your
Flexible Purchase Payment(s), a Market Value Adjustment would increase the
value of the amount distributed. Consequently, the Immediate Installment
Account Value will vary based on changes in interest rates since the date of
your Flexible Purchase Payment, transfers of Immediate Installments and any
partial withdrawals from the Immediate Installment Account. See the "Charges
and Other Deductions" provision in this prospectus. We do not guarantee the
Immediate Installment Account Value. We reserve the right to discontinue
offering the Immediate Installment Account at any time and for any reason.
THE CONTRACT
The contract is a scheduled purchase payment variable deferred annuity
contract. We describe your rights and benefits below and in the contract. Your
contract may differ in certain respects from the description in this prospectus
due to variations in state insurance law requirements. Your contract reflects
what applies to you.
We discontinued offering the contracts for new sales effective December 31,
2008. Contract owners may continue to make purchase payments in accordance with
the terms of their contract and as described in the "Purchase Payments"
provision on page 22.
OWNERSHIP
As Owner(s), you have all the rights under the contract, subject to the rights
of any irrevocable beneficiary. Ownership rights may be restricted by court
orders, child support or tax collection actions or other legal proceedings.
Two persons may apply for a contract as Joint Owners. Joint Owners have equal
undivided interests in their contract. This means that each may exercise any
ownership rights on behalf of the other except ownership changes. Joint Owners
also have the right of survivorship. This means if a Joint Owner dies, his or
her interest in the contract passes to the surviving Owner. You must have our
approval to add a Joint Owner after we issue the contract. Joint Owners added
after the Contract Date must be spouses. We may require additional information,
such as a copy of your marriage certificate, if Joint Ownership is requested
after the Contract Date. During the Annuitant(s)'s life, you can change any
non-natural Owner to another non-natural Owner. Changing the non-natural Owner
may have negative tax consequences and you should consult a tax adviser before
doing so.
ANNUITANT/JOINT ANNUITANT
An Annuitant must be named. Except for non-natural Owners, an Owner must be an
Annuitant. Therefore, if two natural persons are Joint Owners, they must be
Joint Annuitants, unless the contract is issued as an IRA. If the contract is
issued as an IRA, there may only be one Owner, but there may be Joint
Annuitants provided one of the Joint Annuitants is also the Owner. You cannot
change the Annuitant(s) without our consent. If any Owner is not a natural
person, a Joint Annuitant cannot be added or removed after the contract is
issued.
If you purchased this contract with a flexible purchase payment variable
deferred annuity contract issued by the Company ("Funding Annuity") pursuant to
an Annuity Cross Funding Program, the Owner and Joint Owner (if applicable),
Annuitant and Joint Annuitant (if applicable) of this contract, must be the
same as the Owner or Joint Owner (if applicable), Annuitant and Joint Annuitant
(if applicable) of the Funding Annuity. See the "Appendix -- Annuity Cross
Funding Program" provision of this prospectus.
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ASSIGNMENT
An Owner of a Non-Qualified Contract may assign some or all of his or her
rights under the contract as collateral security for a loan. An assignment must
occur before the Annuity Commencement Date and while an Annuitant is still
living. Once proper notice of the assignment is recorded by our Home Office,
the assignment will become effective as of the date the written request was
signed.
Qualified Contracts, IRAs and Tax Sheltered Annuity Contracts may not be
assigned, pledged or otherwise transferred except where allowed by law.
We are not responsible for the validity or tax consequences of any assignment.
We are not liable for any payment or settlement made before the assignment is
recorded. Assignments will not be recorded until our Home Office receives
sufficient direction from the Owner and the assignee regarding the proper
allocation of contract rights.
Amounts pledged or assigned will be treated as distributions and will be
included in gross income to the extent that the Contract Value exceeds the
investment in the contract for the taxable year in which it was pledged or
assigned. Amounts assigned may be subject to an IRS tax penalty equal to 10%
loss of the amount included in gross income.
Assignment of the entire Contract Value may cause the portion of the contract
exceeding the total investment in the contract and previously taxed amounts to
be included in gross income for federal income tax purposes each year that the
assignment is in effect. See the "Federal Income Tax Matters" provision of this
prospectus.
GUARANTEED MINIMUM INCOME PAYMENTS
The contract offers you guaranteed periodic annuity benefits that can protect
your investment against the adverse results of poor Subaccount performance. If
you make all Scheduled Installments on time and pay back the amount of any
partial withdrawal received from the Subaccount with interest within one year
of the partial withdrawal (but not later than the Annuity Commencement Date
which must be a date at least 10 years from the date the contract is issued),
then we guarantee that no matter how the Subaccount performs, each monthly
Income Payment you receive will never be less than the amount of the Guaranteed
Minimum Income Payment.
Should you miss a Scheduled Installment, you may still meet the requirements
for making Scheduled Installments:
(1) if you pay any missed Scheduled Installment(s), with interest, within
one year of the due date of the missed Scheduled Installment (but not
later than the Annuity Commencement Date which must be a date at least
10 years from the date the contract is issued); and
(2) you make no more than 24 Scheduled Installments over the life of the
contract outside of the grace period (within 30 days after the date each
Scheduled Installment is due).
SHOULD YOU FAIL TO MEET THE CONDITIONS LISTED ABOVE, YOU MAY STILL BE ENTITLED
TO REDUCED GUARANTEED MINIMUM INCOME PAYMENTS PURSUANT TO A VESTING SCHEDULE
UNDER THE CONTRACT. SEE THE "GUARANTEED MINIMUM INCOME PAYMENTS" PROVISION
LATER IN THIS PROSPECTUS FOR ADDITIONAL INFORMATION. IF YOU DO NOT MEET THE
CONDITIONS LISTED ABOVE, AND YOU ARE NOT ENTITLED TO REDUCED GUARANTEED MINIMUM
INCOME PAYMENTS UNDER THE CONTRACT, YOU CAN STILL RECEIVE INCOME PAYMENTS ON
THE ANNUITY COMMENCEMENT DATE, BUT YOU WILL LOSE YOUR RIGHT TO THE GUARANTEED
MINIMUM.
PURCHASE PAYMENTS
GENERAL. Purchase Payments can be Scheduled Purchase Payments or Flexible
Purchase Payments. How we allocate these payments depends on your instructions,
when we receive the payment and the amount of the payment received. See the
"Purchase Payment Allocation Table" in the "Synopsis" provision of this
prospectus.
Purchase Payments received will be allocated as follows:
(1) Any Scheduled Purchase Payment made on or after the Monthly Due Date for
purposes of satisfying a Scheduled Installment will be allocated to the
Subaccount;
(2) Any Scheduled Purchase Payment made for purposes of satisfying a
Scheduled Installment, but received prior to that installment's Monthly
Due Date will be allocated to the Guarantee Account until the Monthly
Due Date. On the Monthly Due Date, that Purchase Payment will be
transferred to the Subaccount;
(3) Any Flexible Purchase Payment received that is greater than 6 times the
amount of the Scheduled Purchase Payment and accompanied with complete
transfer instructions will be allocated to the Immediate Installment
Account. If no transfer instructions are received, the payment will be
allocated to the Guarantee Account. Should the payment received exceed
the amount required to make all remaining Scheduled Installments, the
excess amount will be returned to the Owner within 7 days;
(4) Any Flexible Purchase Payment received that is equal to or less than 6
times the amount of the Scheduled Installment will be allocated to the
Guarantee Account.
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If we receive a Flexible Purchase Payment that is in an amount greater than 6
times the amount of the Scheduled Purchase Payment with complete instructions
as to how you want the payment transferred to the Subaccount, we will invest
your Flexible Purchase Payment in the Immediate Installment Account. Otherwise,
we will invest your Flexible Purchase Payment in the Guarantee Account. Once we
receive sufficient transfer instructions, as outlined below, we will transfer
your Flexible Purchase Payment from the Guarantee Account to the Immediate
Installment Account.
Transfer instructions must include direction as to:
(1) whether the Flexible Purchase Payment is to be used to fully pay some or
all of your Scheduled Installments; or
(2) whether the Flexible Purchase Payment is to be used to lower the amount
of some or all of your Scheduled Purchase Payments.
Flexible Purchase Payments received that are equal to or less than 6 times the
amount of the Scheduled Purchase Payment will be invested in the Guarantee
Account and cannot be transferred to the Immediate Installment Account. Assets
in the Guarantee Account, however, can be used to make Scheduled Installments.
Transfers or payments to the Subaccount cannot be greater than the Scheduled
Installment amount. Scheduled Installments can be made by:
(1) Scheduled Purchase Payments;
(2) Immediate Installments from the Immediate Installment Account;
(3) transfers from the Guarantee Account;
(4) transfers from another flexible purchase payment variable deferred
annuity contract issued by Genworth Life and Annuity Insurance Company
or one of its affiliated companies pursuant to an approved Annuity Cross
Funding Program (not available for contracts issued on or after August
17, 2004); or
(5) a combination of any of the above.
The total Purchase Payments for all contracts issued to any one Owner and/or
Annuitant cannot exceed $2,000,000 without our prior approval.
ESTABLISHING SCHEDULED INSTALLMENTS. We determine your right to receive the
Guaranteed Minimum Income Payments, in part, by the timely payment of the
Scheduled Installments. Scheduled Installments are the monthly investments that
you must make to the Subaccount during the Accumulation Period of your
contract. You may make Scheduled Installments through a combination of
Scheduled Purchase Payments and Flexible Purchase Payments.
We establish the amount and number of your Scheduled Installments when we issue
your contract. Once established, the number and amount of the monthly Scheduled
Installments cannot be changed. The amount and number of monthly Scheduled
Installments depends in part on the amount of Guaranteed Minimum Income
Payments and the Annuity Commencement Date you request at the time of
application.
GUARANTEED MINIMUM INCOME PAYMENTS AND AMOUNT OF SCHEDULED INSTALLMENTS. The
Guaranteed Minimum Income Payment is the minimum monthly Income Payment we
promise to pay beginning on the Annuity Commencement Date (the Annuity
Commencement Date must be selected at the time of application and must be a
date at least 10 years from the date the contract is issued) and continuing for
the lifetime of the Annuitant(s) (or, if such Annuitant(s) dies before the end
of a certain stated number of years, for that number of years) provided you
have met the conditions necessary to receive the payments.
In the event that an Owner marries after we issue the contract, upon our
approval, he or she may add their spouse as a Joint Owner and/or Joint
Annuitant before the Annuity Commencement Date. If we approve the change, the
amount and duration of your Scheduled Installments will not change; however, we
will reduce the amount of your Guaranteed Minimum Income Payments because we
expect to make such payments for a longer period of time (i.e., until the death
of the last surviving spouse). The Guaranteed Minimum Income Payments will be
reduced as if the spousal Joint Owner was added to the contract on the Contract
Date. In addition, if you purchased this contract pursuant to an Annuity Cross
Funding Program, the Owner, Joint Owner (if applicable), Annuitant, and Joint
Annuitant (if applicable) of this contract, must be the same as the Owner,
Joint Owner (if applicable), Annuitant and Joint Annuitant (if applicable) of
the Funding Annuity. See the "Appendix -- Annuity Cross Funding" provision in
this prospectus.
When you apply for a contract, your application must provide us with:
. the Annuity Commencement Date (which may not be changed after the contract
is issued);
. the age (and for Non-Qualified Contracts, the gender) of the Annuitant(s);
. the Accumulation Period (the Accumulation Period must be at least 10
years);
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. the minimum number of years (between 10 and 50, in five year increments)
for which you would like Income Payments to be made; and
. one of the following items of information:
-- the amount of the Guaranteed Minimum Income Payment you want; or
-- how much you want to pay in Scheduled Purchase Payments and/or Flexible
Purchase Payments.
With either item of information, we can determine the other item.
You may not change your Annuity Commencement Date after your contract is
issued. Your Annuity Commencement Date must be at least 10 years from the date
the contract is issued.
When we compute the amount of your Guaranteed Minimum Income Payments that your
Scheduled Installments purchase, we consider a number of factors, including:
. expected mortality;
. persistency;
. length of Accumulation Period;
. length of certain period;
. expected investment performance; and
. length of maintenance, acquisition and distribution expenses.
Most of these factors may vary from one Owner and/or one market to another. Of
the factors listed, the ones most likely to vary by market are: expected
mortality, expected persistency, as well as acquisition and distribution
expenses.
Mortality is dependent on many things, including age, gender, occupation,
smoking status, socio-economic status, marital status, place of residence, etc.
Age and gender are expressly reflected in the calculation of the Guaranteed
Minimum Income Payment.
Persistency is also (or can be) impacted by age, occupation, socio-economic
status, marital status, whether a Flexible Purchase Payment has been made, etc.
Persistency is not directly used in the calculation of the Guaranteed Minimum
Income Payment but is an important consideration in the pricing process that
determines the level of Guaranteed Minimum Income Payment we can offer.
Acquisition and distribution expenses vary by the market in which the contract
is sold, e.g. a group sale generally has lower distribution costs per dollar of
Purchase Payment than an equivalent number of individual sales. Distribution
expenses are not directly reflected in the calculation of the Guaranteed
Minimum Income Payment but are an important consideration in the pricing
process.
We will not necessarily reflect any or all of these factors in determining the
Guaranteed Minimum Income Payment formula for a given market. We reserve the
right to recognize the impact of these differences should we sell into markets
where one or more of the factors is present.
Once your contract is issued and your Guaranteed Minimum Income Payments
determined, the amount and number of Scheduled Installments determined
necessary to obtain your Guaranteed Minimum Income Payments will not change.
See the "Guaranteed Minimum Income Payments" section of this prospectus.
MAKING SCHEDULED INSTALLMENTS. You must make Scheduled Installments on the
Monthly Due Date. For contracts issued on or after May 1, 2006, the minimum
monthly Scheduled Installment is $250. For contracts issued prior to May 1,
2006, the minimum monthly Scheduled Installment is $100. You may make Scheduled
Installments to the Subaccount in one of the following ways:
(1) by transferring assets from the Guarantee Account;
(2) by transferring assets from the Immediate Installment Account;
(3) by making Scheduled Purchase Payments when due;
(4) by transferring assets from another flexible purchase payment variable
deferred annuity contract issued by Genworth Life and Annuity Insurance
Company or one of its affiliated companies pursuant to an approved
Annuity Cross Funding Program (not available for contracts issued on or
after August 17, 2004); or
(5) by any combination of the above.
The amount of your Scheduled Purchase Payments will vary based on whether an
Immediate Installment is being transferred to the Subaccount. For any month, an
Immediate Installment will decrease or eliminate the amount of a Scheduled
Purchase Payment that would have been required had there not been an Immediate
Installment.
We allocate a Scheduled Purchase Payment received before its Monthly Due Date
to the Guarantee Account. We will transfer that early payment from the
Guarantee Account to the Subaccount on the Monthly Due Date. In the event that
we do not receive your Scheduled Purchase Payment on or before its
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Monthly Due Date, we will use any Guarantee Account Value to make up the missed
Scheduled Purchase Payment. If the Guarantee Account Value is insufficient for
this purpose and the 30-day grace period has expired, then that Scheduled
Installment is considered missed.
Transfers cannot be made to the Subaccount at any time other than on the
Monthly Due Date. Therefore, this product due to its design and one available
Subaccount will not permit frequent transfers among investment options.
GRACE PERIOD
The contract permits a 30-day grace period for the payment of each Scheduled
Installment. This grace period begins the day after the Monthly Due Date for
the Scheduled Installment. If the Scheduled Installment remains in default past
the end of the grace period an interest rate at an effective annual rate of 6%
will be charged to all outstanding amounts. If the Scheduled Installment(s)
remains in default past 12 months from the original due date, you will lose the
right to Guaranteed Minimum Income Payments, unless you meet the requirements
for reduced Guaranteed Minimum Income Payments pursuant to a vesting schedule.
REINSTATEMENT
We will notify you of any delinquent payments on subsequent billing notices. In
addition, if more than 9 months have passed from the date of the missed
Scheduled Installment, we will send you a written notice once per month, up to
the 12th month, that you are in danger of forfeiting your right to the
Guaranteed Minimum Income Payments. You may reinstate your right to the
Guaranteed Minimum Income Payment by paying the missed Scheduled
Installment(s), or the missing portion thereof, within the earlier of:
(1) one year of its Monthly Due Date; or
(2) the Annuity Commencement Date.
You also must pay us the missed Scheduled Installment(s), as well as interest
at an annual rate of 6%. Interest accrues from the date of the end of the grace
period for the missed Scheduled Installment(s) (or portion thereof) until the
date of the next Monthly Due Date following the receipt of the payment. We will
notify you of the exact amount you owe.
We allocate Purchase Payments for the missed portion of the Scheduled
Installments to the Subaccount as of the Valuation Day that we receive them.
We apply Purchase Payments representing less than the full amount owed in
connection with a missed Scheduled Installment in the following order:
(1) to the missed portion of the Scheduled Installment;
(2) amounts due for any riders; and then
(3) interest on any missed Scheduled Installment(s).
If more than one Scheduled Installment is missed, we apply any Purchase Payment
you make to pay the most recently missed Scheduled Installment (or portion
thereof). We will reinstate your right to receive full Guaranteed Minimum
Income Payments only after you have paid us all of your missed Scheduled
Installments, including any interest you owe. To retain your right to full
Guaranteed Minimum Income Payments, you may make no more than 24 Scheduled
Installments outside the grace period over the life of your contract. If you
fail to pay any Scheduled Installment, with any interest that is charged on it
within one year from its Monthly Due Date (but not later than the Annuity
Commencement Date which must be a date at least 10 years from the date the
contract is issued), you forfeit your right to receive the Guaranteed Minimum
Income Payments and you cannot reinstate it, (but may still be eligible for
reduced Guaranteed Minimum Income Payments pursuant to a vesting schedule in
accordance with the terms of your contract). See the "Guaranteed Minimum Income
Payments" section in this prospectus.
SCHEDULED PURCHASE PAYMENTS
When we issue a contract, and whenever we allocate a Flexible Purchase Payment
to the Immediate Installment Account, we will send you a new contract data page
which includes your revised schedule of Scheduled Purchase Payments. Thus,
month-by-month, Scheduled Purchase Payments always equal the difference between
Scheduled Installments and Immediate Installments. The minimum Scheduled
Purchase Payment is $25.00.
You may make Scheduled Purchase Payments through automatic transfers from your
bank account (i.e., electronic fund transfers). Doing this helps ensure that
you will make your Scheduled Purchase Payments on the Monthly Due Date.
FLEXIBLE PURCHASE PAYMENTS AND IMMEDIATE INSTALLMENTS
You also may make your Scheduled Installments through Flexible Purchase
Payments. Flexible Purchase Payments received on or before the Contract Date
will be allocated to the Immediate Installment Account. For Flexible Purchase
Payments received after the Contract Date in amounts greater
25
than 6 Scheduled Purchase Payments (computed as of the date that we receive the
Flexible Purchase Payment), we will allocate such payments to the Immediate
Installment Account, provided we have sufficient transfer instructions as
outlined in the "Purchase Payment" provision in this prospectus. We will
allocate Flexible Purchase Payments received after the Contract Date to the
Guarantee Account for Flexible Purchase Payments that are equal to or less than
6 times the Scheduled Purchase Payments, or for those Flexible Purchase
Payments that are greater than 6 times the Scheduled Purchase Payments, but not
accompanied by sufficient transfer instructions.
We use Flexible Purchase Payments allocated to the Immediate Installment
Account to "fund" or generate a series of monthly Immediate Installments that
we transfer to the Subaccount on each Monthly Due Date to "pay" all or part of
the Scheduled Installments. See the "Purchase Payment Allocation Table" later
in this provision. Immediate Installments have the effect of reducing or
eliminating the required Scheduled Purchase Payments for all or part of the
Accumulation Period, depending on the method you select for the installments.
Each Flexible Purchase Payment supports a separate series of Immediate
Installments, with each series having a starting date and an ending date. The
starting date is generally the Monthly Due Date following the allocation of the
payment to the Immediate Installment Account and the ending date depends on the
Immediate Installment method you select. However, if you elect one of our
optional riders, Flexible Purchase Payments must end on the earlier of the
Annuity Commencement Date or age 65 of the covered Annuitant.
For each series of Immediate Installments, each monthly installment must be the
same amount. For any Flexible Purchase Payment, the fewer the number of
Immediate Installments, the larger such Installments can be. Conversely, the
smaller each Immediate Installment, the greater the number of installments that
the Flexible Purchase Payment can support. Since Immediate Installments may be
transferred only on the Monthly Due Date, a greater number of installments
translates into a longer portion of the Accumulation Period over which such
Installments are made. Thus, you may use a Flexible Purchase Payment to
eliminate a number of Scheduled Installments or to "buy down" the amount of
some greater number of Scheduled Purchase Payments. Exactly how much you can
eliminate or "buy down" depends on the amount of the Flexible Purchase Payment,
the rate of interest that we credit to the Immediate Installment Account Value
as determined on the date of purchase and the number of installments.
We compute the series of installments for each Flexible Purchase Payment
allocated to the Immediate Installment Account by crediting interest at a rate
that we determine for each Flexible Purchase Payment at the time that you make
the Flexible Purchase Payment. Using that interest rate and knowing either the
amount of the installments or the number of installments you want, we determine
the amount and number of the installments. Your Immediate Installments reflect
interest that is credited each month on a declining balance as Immediate
Installments are transferred to the Subaccount. For example, assume that you
want 120 installments (i.e., ten years of installments) from your Flexible
Purchase Payment beginning
immediately. We calculate a level installment to be transferred each month.
This installment is the amount that will result in the Flexible Purchase
Payment (net of any applicable premium tax), and all interest earned, being
completely transferred to the Subaccount by the end of the 10 years.
We will return the portion of any Flexible Purchase Payment that is more than
the amount needed to pay all future Scheduled Installments within 7 days of
receipt. The total Purchase Payments for all contracts issued to any one Owner
cannot exceed $2,000,000 without our prior approval.
ALLOCATION OF PURCHASE PAYMENTS
We allocate Scheduled Purchase Payments received on the Monthly Due Date, as
well as any payments past due that we receive, directly to the Subaccount on
the Valuation Day we receive such payment. We allocate any Scheduled Purchase
Payment we receive before the Monthly Due Date to the Guarantee Account, and
transfer that payment to the Subaccount as of the Monthly Due Date. We allocate
Flexible Purchase Payments that are received in an amount greater than 6
Scheduled Purchase Payments directly to the Immediate Installment Account,
provided we have sufficient transfer instructions to determine a payment method
for your Immediate Installments. If we do not receive sufficient transfer
instructions, we will allocate that Flexible Purchase Payment to the Guarantee
Account until we receive sufficient instructions. In addition, any Flexible
Purchase Payment received that is equal to or less than 6 Scheduled Purchase
Payments will be directed to the Guarantee Account.
PURCHASE PAYMENT ALLOCATION TABLE

TYPE OF PAYMENT WHEN RECEIVED WHERE ALLOCATED
--------------------------------------------------------
Scheduled After Monthly Due Subaccount for
Purchase Date any past due
Payment or Scheduled
portion thereof Installment, then
Guarantee
Account for
remainder
--------------------------------------------------------
Flexible Purchase On or After Immediate
Payment that is Contract Date Installment
greater than 6 Account
Scheduled
Purchase
Payments with
instructions
--------------------------------------------------------
Flexible Purchase On or After Guarantee
Payment that is Contract Date Account until
greater than 6 instructions
Scheduled received, then
Purchase transferred to
Payments without Immediate
instructions Installment
Account
--------------------------------------------------------
Flexible Purchase On or After Guarantee
Payment that is Contract Date Account
equal to or less
than 6 Scheduled
Purchase
Payments
--------------------------------------------------------

Should the payment received exceed the amount required to make all remaining
Scheduled Installments, the excess amount will be returned to the Owner within
7 days.
OPTIONAL RIDERS
To reduce the risk that unforeseen events could leave you without the resources
to make Scheduled Purchase Payments, we offer three optional riders that you
may purchase at contract issue or on a contract anniversary (provided that you
remain eligible to receive Guaranteed Minimum Income Payments). Under each of
these riders, we will waive all or a portion of the Scheduled Purchase Payments
due during the periods specified in each rider. These riders are not available
to fully funded contracts or to contracts issued through an approved Annuity
Cross Funding Program. See the "Appendix -- Annuity Cross Funding Program"
provision for more information.
When you apply for an Optional Rider, you tell us how much of a Scheduled
Purchase Payment you would like us to waive. Owners and Joint Owners may
designate any combination of percentages as long as such percentages are in
whole numbers and equal 100%. Once a percentage of Scheduled Purchase Payments
waived has been designated, it cannot be changed. The available riders are:
. DISABILITY BENEFIT RIDER -- This rider provides that, during the life of
the covered Annuitant, should the covered Annuitant become totally
disabled (as defined in the rider), all or a portion of the Scheduled
Purchase Payments due during the period of total disability will be
waived. Also, we will waive all or a portion of Purchase Payments for
other riders due during the period of total disability for the period we
waive Scheduled Purchase Payments. Portions of a Scheduled Purchase
Payment may be waived in cases of Joint Owners/Joint Annuitants where one
spouse becomes disabled. For instance, if the husband is covered for 60%
of a Scheduled Purchase Payment and he becomes totally disabled, as
defined by the rider, AND the husband is the covered Annuitant, then we
will waive 60% of the Scheduled Purchase Payment. We will calculate the
Monthly Income Benefit and Death Benefit under the contract as if you had
paid the waived Scheduled Purchase Payment when due. However, the waived
Scheduled Purchase Payments do not increase the Surrender Value of the
contract.
We will credit the disability benefit provided under this rider on each
Monthly Due Date during a period beginning from the date of total
disability to the earliest of:
(1) the contract anniversary on or next following the covered Annuitant's
65th birthday;
(2) the Annuity Commencement Date;
(3) the contract surrender date;
(4) the covered Annuitant's recovery from total disability; and
(5) the covered Annuitant's death.
Benefits take effect only after 90 days of continuous total disability.
Once satisfactory proof of disability is received at our Home Office and
benefits take effect, we will waive Scheduled Purchase Payments missed
during the 90 day period and will reapply any Scheduled Purchase Payments
you made during that period to the Guarantee Account. If the claim is
denied and Scheduled Purchase Payments have not been made, the Scheduled
Installments will be considered missed and will need to be made in
accordance with the "Guaranteed Minimum Income Payments" provision in
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this prospectus in order to maintain your right to Guaranteed Minimum
Income Payments on the Annuity Commencement Date.
. UNEMPLOYMENT BENEFIT RIDER -- This rider provides that if the covered
Annuitant becomes involuntarily unemployed, all or a portion of the
Scheduled Purchase Payments due during the period of unemployment (up to a
maximum of one year per five-year period -- the "benefit period") will be
waived. Also, we will waive all or a portion of Purchase Payments required
for other riders due during the period we waive the Scheduled Purchase
Payments for the Unemployment Benefit Rider. Portions of a Scheduled
Purchase Payment may be waived in cases of Joint Owners/Joint Annuitants
where one spouse becomes unemployed. For instance if the husband is
covered for 60% of a Scheduled Purchase Payment and he becomes unemployed
and the husband is the covered Annuitant, we will waive 60% of the
Scheduled Purchase Payment.
To receive this benefit:
(1) the covered Annuitant must be receiving state unemployment benefits
for at least 90 consecutive days;
(2) the rider must be in effect for one year; and
(3) we must receive satisfactory proof of unemployment at our Home Office.
Satisfactory proof of unemployment consists of a letter from the
appropriate state government department responsible for administering
unemployment benefits.
Benefits will be covered for only one benefit period during any five-year
period. We will consider a period of unemployment as a continuation of the
previous benefit period if:
(1) the unemployment occurs within 30 days of the end of a benefit
period; and
(2) the full year of the benefit period has not been completed.
If the covered Annuitant becomes unemployed during the first contract
year, we will waive Scheduled Purchase Payments beginning on the next
contract anniversary if:
(1) the covered Annuitant has been receiving state unemployment benefits
for at least 90 consecutive days; and
(2) the period of unemployment continues through the date the rider has
been in effect for one year.
Although the maximum benefit period is one year, the benefit period will
not continue beyond the earliest of:
(1) the contract anniversary on or next following the covered Annuitant's
65th birthday;
(2) the Annuity Commencement Date;
(3) the contract surrender date;
(4) the Monthly Due Date after we receive your request to end the rider;
(5) the loss of state unemployment benefits; and
(6) the covered Annuitant's death.
If the benefit provided by this rider ends before the Annuity Commencement
Date, you must resume making Scheduled Purchase Payments in order to keep
your right to Guaranteed Minimum Income Payments in effect.
We will not credit the benefits provided by this rider if the unemployment
is:
(1) voluntary;
(2) caused by a self-inflicted injury; or
(3) the result of being in prison for a period exceeding 90 days.
The waiver of Scheduled Purchase Payments provided by this rider will not
increase your Surrender Value prior to the Annuity Commencement Date.
However, we will calculate the Monthly Income Benefit and the Death
Benefit available under the contract as if you had paid the Scheduled
Purchase Payment when due.
. JOINT ANNUITANT LIFE RIDER -- This rider is only available for spouses.
This rider provides that if a covered Joint Annuitant dies, all or a
portion of the Scheduled Purchase Payments will be waived. Portions of
Scheduled Purchase Payments are waived in cases of Joint Owners/Joint
Annuitants where one spouse dies. For example, if a husband is covered for
60% of the monthly Scheduled Purchase Payment and he passes away, then we
will waive 60% of the Scheduled Purchase Payment from the date of the
husband's death until the Annuity Commencement Date. We will calculate the
Monthly Income Benefit and Death Benefit under this contract as if the
Scheduled Purchase Payments waived had been paid when due. However, the
waived Scheduled Purchase Payments do not increase the Surrender Value of
the contract. If you surrender the contract, the Monthly Income Benefit
and the Death Benefit associated with the waived Scheduled Purchase
Payments will remain in effect.
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Benefits under this rider will be covered from the date of the covered
Annuitant's death until the earlier of:
(1) the contract anniversary on or next following the surviving Joint
Annuitant's 65th birthday; and
(2) the Annuity Commencement Date.
The charges for the optional riders are in addition to your Scheduled Purchase
Payments. The amount paid for the optional riders is taken prior to the
allocation of any assets to any account. The riders and your contract's data
pages provide more detailed information about the riders including certain
conditions and limitations. The riders may not be available to Qualified
Contracts, available in all states, or available in all markets.
VALUATION DAY AND VALUATION PERIOD
We will value Accumulation Units and Annuity Units once daily at the close of
regular trading (currently, 4:00 p.m. Eastern Time) on each day the New York
Stock Exchange is open except for on days on which a Portfolio does not value
its shares. If a Valuation Period contains more than one day, the unit values
will be the same for each day in the Valuation Period.
VALUATION OF ACCUMULATION UNITS
Upon allocation or transfer to the Subaccount, we convert payments into
Accumulation Units. We determine the number of Accumulation Units credited by
dividing the dollar amount directed to the Subaccount by the value of an
Accumulation Unit for the Subaccount on the Valuation Day on which the
Scheduled Purchase Payment or Immediate Installment is invested in the
Subaccount. Therefore, Scheduled Purchase Payments allocated or Immediate
Installments transferred to the Subaccount increase the number of Accumulation
Units credited to the contract.
Partial withdrawals, surrenders, payment of a Death Benefit, and the
application of Subaccount Value to acquire Monthly Income Payments on the
Annuity Commencement Date all result in the cancellation of an appropriate
number of Accumulation Units. We cancel Accumulation Units as of the end of the
Valuation Period in which we receive notice or instructions relating to the
event.
The Accumulation Unit value at the end of every Valuation Day equals the
Accumulation Unit value at the end of the preceding Valuation Day multiplied by
the net investment factor (described below). We arbitrarily set the
Accumulation Unit value at the inception of the Subaccount at $10. On any
Valuation Day, we determine your Subaccount value by multiplying the number of
Accumulation Units attributable to your contract by the Accumulation Unit value
for that day.
The net investment factor is an index used to measure the investment
performance of the Subaccount from one Valuation Period to the next. The net
investment factor for the Subaccount for any Valuation Period reflects the
change in the net asset value per share of the Total Return Fund from one
Valuation Period to the next, adjusted for the daily deduction of the
administrative expense and mortality and expense risk charges from assets in
the Subaccount. If any "ex-dividend" date occurs during the Valuation Period,
we take into account the per share amount of any dividend or capital gain
distribution, so that the unit value is not impacted. Also, if we take into
account a charge or credit for any reserved taxes, which we determine to have
resulted from the operations of the Subaccount.
The value of an Accumulation Unit may increase or decrease based on the net
investment factor. Changes in the net investment factor may not be directly
proportional to changes in the net asset value of the Total Return Fund because
of the deduction of Variable Account charges. Though the number of Accumulation
Units will not change as a result of investment experience, the value of an
Accumulation Unit may increase or decrease from Valuation Period to Valuation
Period.
SURRENDER AND PARTIAL WITHDRAWALS
We will allow you to surrender your contract or withdraw a portion of your
Contract Value, at any time before the Annuity Commencement Date upon your
written request, subject to the conditions set forth below.
Partial withdrawals must be at least $100. A partial withdrawal or surrender is
effective as of the Valuation Day we receive your request at our Home Office in
a form acceptable to us. Unless you request otherwise, we will take any partial
withdrawal:
(1) first from the Guarantee Account;
(2) then from the Immediate Installment Account; and
(3) finally from the Subaccount.
You may need to make Scheduled Purchase Payments when you otherwise would not
have to, if you had taken partial withdrawals from the Guarantee Account and/or
the Immediate Installment Account and the amounts remaining in such accounts
are insufficient to fully make your Scheduled Installments.
Partial withdrawals and surrender may be subject to surrender and/or access
charges and a Market Value Adjustment. When taking a partial withdrawal, any
applicable surrender charge, access charge, Market Value Adjustment and/or any
applicable
29
premium tax will be taken from the amount withdrawn. See the "Charges and Other
Deductions" provision in this prospectus. A partial withdrawal may also reduce
the amount of your Death Benefit. See "The Death Benefit" provision in this
prospectus.
You may elect to surrender your contract at any time after the issue date and
receive a lump sum payment, subject to a surrender charge, any access charge
and a Market Value Adjustment, if applicable. After 12 months from the date the
contract is issued, you may surrender your contract and elect one of the
Optional Payment Plans. If you elect to surrender your contract, a surrender
charge and any applicable access and Market Value Adjustment will be assessed
unless you elect Optional Payment Plan 1, Optional Payment Plan 2 (with a
period certain of 10 or more years) or Optional Payment Plan 5. Your surrender
charges will be waived if you surrender your contract and apply the assets to
Optional Payment Plan 1, Optional Payment 2 (with a period certain of 10 or
more years) or Optional Payment Plan 5, however, you may still be subject to a
Market Value Adjustment if you have assets allocated to the Immediate
Installment Account at the time of surrender. If you elect to surrender your
contract and apply the assets to any Optional Payment Plan, you will lose all
rights to Guaranteed Minimum Income Payments under the contract. We will
calculate any Surrender Value as of the Valuation Day your request for
surrender is received at our Home Office.
You may also surrender your contract on the Annuity Commencement Date (which
must be a date at least 10 years from the date the contract is issued) for the
Contract Value as of that Valuation Day, without any surrender and/or access
charges. In order to receive the lump sum payment, you must notify us at our
Home Office of your intent to receive a lump sum payment on the Annuity
Commencement Date within at least 10 business days and not more than 90 days
prior to the Annuity Commencement Date. You will lose any Guaranteed Minimum
Income Payments upon annuitization if you elect to receive a lump sum payment.
If an Owner dies after notification is received, but prior to the Annuity
Commencement Date, payment will be made in accordance with the "Death Benefit
Upon Death of An Owner Before the Annuity Commencement Date" provision in this
prospectus.
We will delay making a payment if:
(1) the disposal or valuation of the Variable Account's assets is not
reasonably practicable because the New York Stock Exchange is closed;
(2) on nationally recognized holidays, trading is restricted by the New York
Stock Exchange;
(3) an emergency exists making the disposal or valuation of securities held
in the Variable Account impracticable; or
(4) the SEC by order permits postponement of payment to protect our Owners.
Rules and regulations of the SEC may prescribe as to when the conditions
described in (3) and (4) above exist. If we are closed on days when the New
York Stock Exchange is open, Contract Value may be affected since Owners will
not have access to their account.
In addition, we are required by state law to reserve the right to defer
payments from the Guarantee Account and the Immediate Installment Account for
partial withdrawals and surrenders for up to six months from the date we
receive your payment request. See the "Requesting Payments" provision of this
prospectus for more information on circumstances in which we may delay making
payments under the contract.
Partial withdrawals and surrender may be subject to ordinary income tax and, if
taken prior to age 59 1/2, an additional 10% IRS penalty tax. A surrender or a
partial withdrawal may also be subject to income tax withholding. See the
"Federal Income Tax Matters" provision in this prospectus.
TELEPHONE WITHDRAWALS. You may take partial withdrawals under your contract by
writing us in a form acceptable to us, or calling us provided we received your
prior written authorization to take partial withdrawals over the telephone at
our Home Office. You only can surrender your contract by writing our Home
Office.
We will employ reasonable procedures to confirm that instructions we receive
are genuine. Such procedures may include, among others:
. requiring you or a third party you authorized to provide some form of
personal identification before we act on the telephone instructions;
. confirming the telephone transaction in writing to you or a third party
you authorized; and/or
. tape-recording telephone instructions.
If we do not follow reasonable procedures, we may be liable for any losses due
to unauthorized or fraudulent instructions. We reserve the right to limit or
prohibit telephone withdrawals.
To request a telephone withdrawal, please call us at 800.352.9910.
SPECIAL NOTE ON RELIABILITY. Please note that our telephone system may not
always be available. Any telephone system, whether it is ours, yours, your
service provider's or your registered representative's, can experience
unscheduled outages or slowdowns for a variety of reasons. These outages or
slowdowns may delay or prevent our processing of your
30
request. Although we have taken precautions to help our systems handle heavy
use, we cannot promise complete reliability under all circumstances. If you are
experiencing problems, you can make your transaction request by writing our
Home Office at the address listed on page 2 of this prospectus.
REPAYMENT OF PARTIAL WITHDRAWALS OF SUBACCOUNT VALUE. To remain eligible to
receive Guaranteed Minimum Income Payments (or partial Guaranteed Minimum
Income Payments if you are eligible for reduced Guaranteed Minimum Income
Payments pursuant to a vesting schedule in accordance with the terms of your
contract), you must repay the amount of any partial withdrawal received from
the Subaccount PLUS any applicable interest on the amount received within one
year from the date of the partial withdrawal, but no later than the Annuity
Commencement Date (such date must be a date at least 10 years from the date the
contract is issued). If the repayment is not made by the Monthly Due Date next
following the date of the partial withdrawal, we will charge you interest at an
effective annual rate of 6% on the total amount withdrawn from the Subaccount.
It is important to understand that, because surrender charges may apply, the
amount you receive from the Subaccount may not be the same as the amount we
withdraw from the Subaccount. You must repay the amount you received from the
Subaccount, PLUS interest and any premium taxes paid on the partial withdrawal.
Therefore, the amount you repay includes:
. the amount you receive from the Subaccount; PLUS
. interest we assess on the amount withdrawn from the date of the partial
withdrawal until the date of repayment; PLUS
. the amount of any premium taxes assessed on amounts withdrawn from the
Subaccount.
We allocate any repayment (after deducting for interest) to the Subaccount as
of the date we receive it. When you repay the amount of each partial withdrawal
from the Subaccount within 12 months of the partial withdrawal, we will
reimburse the Subaccount in the amount of the surrender charge taken for the
repaid amount. The reimbursed amount will come from the assets of our General
Account. Such amounts will be allocated to the Subaccount on the same Valuation
Day your repayment of the partial withdrawal is received.
You should consult your tax adviser concerning repayments as we consider
repayments after deducting interest charges to be new Purchase Payments for tax
purposes (i.e., if the repayment is withdrawn again, that partial withdrawal
will be taxed). In addition, taking a partial withdrawal may subject you to an
ordinary income tax, AND a 10% IRS penalty tax if you are younger than age
59 1/2 at the time the partial withdrawal is taken. You may be subject to the
income tax and penalty tax EVEN IF YOU REPAY ALL AMOUNTS OUTSTANDING.
Consequently, it is very important that you consult your tax adviser prior to
taking any partial withdrawals.
If you take multiple partial withdrawals, we will apply repayments to the most
recent partial withdrawal first.
Partial withdrawals from the Guarantee Account and the Immediate Installment
Account do not have to be repaid to maintain your right to Guaranteed Minimum
Income Payments. Generally, taking partial withdrawals from the Guarantee
Account or Immediate Installment Account will not affect your right to receive
Guaranteed Minimum Income Payments. However taking partial withdrawals from the
Guarantee Account or Immediate Installment Account may require you to make
Scheduled Purchase Payments (or higher Scheduled Purchase Payments). If such
Scheduled Purchase Payments are not made, you could lose your right to receive
the Guaranteed Minimum Income Payments.
SURRENDER VALUE. The amount payable on surrender of the contract is the
Surrender Value as of the date we receive your surrender request in a form
acceptable to us. The Surrender Value equals the Contract Value on the
Valuation Day we receive your request, less any applicable surrender charge,
access charge, and any applicable premium tax charge. We will pay the Surrender
Value in a lump sum, unless you elect one of the Optional Payment Plans. See
the "Optional Payment Plans" provision in this prospectus. We may waive
surrender charges and access charges upon surrender if you elect certain
Optional Payment Plans. See the "Charges and Other Deductions" provision in
this prospectus.
CHARGES AND OTHER DEDUCTIONS
We sell the contracts through registered representatives of broker-dealers.
These registered representatives are also appointed and licensed as insurance
agents of the Company. We intend to recover the cost of marketing,
administering and other costs associated with the benefits of the contracts
through fees and charges imposed under the contracts, including the surrender
charge and access charge, if applicable. See below and the "Sales of the
Contract" provision in this prospectus.
We will deduct the charges described below to cover our costs and expenses, the
services provided, and our risks assumed under the contracts. We incur certain
costs and expenses for the distribution and administration of the contracts and
for providing the benefits payable thereunder. Our administrative services
include:
. processing applications for and issuing the contracts;
. maintaining records;
31
. monthly billing and electronic fund transfer transactions;
. administering Income Payments;
. furnishing accounting and valuation services (including the calculation
and monitoring of daily Subaccount values);
. reconciling and depositing cash receipts;
. providing tax forms;
. providing contract confirmations and periodic statements;
. maintaining an internet service site; and
. furnishing telephone and internet transaction services.
The risks we assume include:
. the risk that the Guaranteed Minimum Income Payments will exceed the
calculated variable Income Payments;
. the risk that the Death Benefit will be greater than the Surrender Value;
. the risk that Annuitant(s) will live longer than we assumed in calculating
the contract guarantees (these guarantees are incorporated in the contract
and cannot be changed); and
. the risk that our costs in providing the services will exceed our revenues
from contract charges (which cannot be changed).
The amount of a charge may not necessarily correspond to the costs associated
with providing the services or benefits stated in the contract. For example,
surrender charges we collect may not fully cover all of the sales and
distribution expenses we actually incur. We also may realize a profit on one or
more of the charges. We may use any such profits for any corporate purpose,
including the payment of sales expenses.
SURRENDER CHARGES, ACCESS CHARGES, AND MARKET VALUE ADJUSTMENTS
We may assess a surrender charge (on payments allocated to the Subaccount and
the Guarantee Account) or an access charge (on payments allocated to the
Immediate Installment Account) on partial withdrawals of Contract Value or
surrender of the Contract. We will also apply a Market Value Adjustment to
determine the Immediate Installment Account Value available for partial
withdrawal from the Immediate Installment Account or full surrender of the
contract.
Unless we receive other instructions, we will first withdraw amounts from:
(1) the Guarantee Account; then
(2) from the Immediate Installment Account; and finally
(3) from the Subaccount.
We will deduct any surrender charge and access charge from the amounts you
withdraw.
SURRENDER CHARGE FROM ASSETS IN THE SUBACCOUNT AND THE GUARANTEE ACCOUNT. The
surrender charge for amounts partially withdrawn or surrendered from the
Subaccount and/or the Guarantee Account is a percentage of the lesser of:
(1) Scheduled Installments made to date and not previously withdrawn
(partial withdrawals repaid within 12 months are not considered
withdrawals for purposes of the surrender charge calculation); and
(2) the amount withdrawn.
The surrender charge percentage is as follows:

SURRENDER CHARGE
(AS A PERCENTAGE OF
THE LESSER OF
SCHEDULED INSTALLMENTS
CONTRACT YEAR MADE TO DATE AND NOT
IN WHICH SURRENDER PREVIOUSLY WITHDRAWN
OR PARTIAL AND THE AMOUNT
WITHDRAWAL IS MADE WITHDRAWN)
------------------------------------------
1 9%
2 8%
3 7%
4 6%
5 5%
6 4%
7 3%
8 2%
9 and after 1%
------------------------------------------

Examples:
Assuming:
. you have made Purchase Payments of $18,000;
. your Contract Value is $20,000 ($17,000 in the Subaccount and $3,000 in
the Guarantee Account), $15,000 of which is from Scheduled Installments;
. you have no value in the Immediate Installment Account;
. you request a partial withdrawal of $10,000 in Contract Year 5; and
. you are not eligible for reduced Guaranteed Minimum Income Payments.
32
Your surrender charge will be $500 (the lesser of 5% of $10,000 and 5% of
$15,000). We take the partial withdrawal from the Guarantee Account ($3,000)
and from the Subaccount ($7,000). You will receive a net check of $9,500
assuming there are no premium taxes or income taxes withheld. To reinstate
your Guaranteed Minimum Income Payment you must repay the $6,650 to the
Subaccount within 12 months of the partial withdrawal. In addition, you must
pay interest to us (assessed on the $6,650 received) within 12 months of the
partial withdrawal.
The following chart depicts the partial withdrawal.

*Assuming no growth in the Subaccount.
However, if you withdraw $17,000, your surrender charge will be $750 (5% of
$15,000). The remaining value in the Guarantee Account is $0 and the remaining
value in the Subaccount is $3,000. You will receive a net check of $16,250
assuming there are no premium taxes or income taxes withheld. To reinstate
your right to Guaranteed Minimum Income Payments you must repay to the
Subaccount $13,400 within 12 months of the partial withdrawal. In addition,
you must pay interest to us (assessed on the $13,400 received) within 12
months of the partial withdrawal.
You will not be assessed a surrender charge on any amounts withdrawn greater
than the amount of Scheduled Installments made.
Current market conditions may affect the impact of the surrender charges on
your contract.
Assuming the amount of Scheduled Installments made to date equals $10,000,
your Contract Value equals $20,000, and you fully surrender your contract in
the third Contract Year, we would assess a surrender charge of $700 (7% of
$10,000) with a net check to you of $19,300 assuming there are no premium
taxes or income taxes withheld. However, if there is a market decline so your
Contract Value is $9,000, and you request a full surrender, we would assess a
surrender charge of $630 (the lesser of 7% of $9,000 and 7% of $10,000) with a
net check to you of $8,370 assuming there are no premium taxes or income taxes
withheld.
WE APPLY A MARKET VALUE ADJUSTMENT TO ANY DEATH BENEFIT, SURRENDER, OR PARTIAL
WITHDRAWAL PAID FROM THE IMMEDIATE INSTALLMENT ACCOUNT. WE WILL ALSO DEDUCT AN
ACCESS CHARGE FROM YOUR PARTIAL WITHDRAWAL OR SURRENDER, BUT NOT FROM ANY
AMOUNT PAID AS A DEATH BENEFIT.
We treat a partial withdrawal or surrender of Contract Value from the Immediate
Installment Account as a proportional withdrawal or surrender of each of the
remaining future Immediate Installments. We also assess an access charge on
amounts you surrender or partially withdraw from the Immediate Installment
Account. This charge is a percentage of the Immediate Installment Account Value
withdrawn.
The concept of calculating a Market Value Adjustment on the Immediate
Installment Account is different from many other Market Value Adjustment
calculations. Unlike traditional Market Value Adjustments where the present
account value is known, here we know the future value of the Immediate
Installments and we need to calculate the present value. Therefore, we must
determine the present value before we can determine what you receive upon
surrender or partial withdrawal.
First, we use the interest rate in effect when you made your Flexible Purchase
Payment into the Immediate Installment Account to discount each future
Immediate Installment back to its present book value. We then sum all of these
present values to calculate the value, before the application of any Market
Value Adjustment.
Next, we determine your Immediate Installment Account Value by applying the
Market Value Adjustment. We calculate the Market Value Adjustment factor
separately for each Immediate Installment. The Market Value Adjustment for each
Immediate Installment is equal to the present book value of that installment
times the Market Value Adjustment factor for that installment. The Market Value
Adjustment factor is:
((1 + i) / (1 + j))/n/ - 1
33
where:

n = the number of months until the Immediate
Installment for a particular Flexible Purchase
Payment will be transferred to the Subaccount
i = the original interest rate we used for the Immediate
Installment when you made the Flexible Purchase
Payment to the Immediate Installment Account
j = the current interest rate we use for a new Flexible
Purchase Payment of (m/12) years that we currently
make available for the Immediate Installment
Account ((m/12) is rounded up to a whole number of
years)
m = the number of months until the last Immediate
Installment for that Flexible Purchase Payment will
be transferred to the Subaccount

The total Market Value Adjustment for the contract is the sum of each Market
Value Adjustment calculated for each Immediate Installment. The Immediate
Installment Account Value is the sum of the present book value of each
Immediate Installment PLUS the total Market Value Adjustment for the contract.
Two examples of how the Market Value Adjustment would work follow.
Examples:
EXAMPLE 1
EXAMPLE OF WITHDRAWAL FROM IMMEDIATE INSTALLMENT ACCOUNT
Assuming:
. At issue, you made a Flexible Purchase Payment with transfers of $645 for
264 months;
. On the first contract anniversary, you made a Flexible Purchase Payment
with transfers of $90 for 72 months;
. Your value (before the application of any Market Value Adjustment) in the
Immediate Installment Account at the end of the second Contract Year is
$98,380. Of this amount, $93,400 is attributable to the initial Flexible
Purchase Payment; the remaining $4,980 is attributable to the Flexible
Purchase Payment paid on the first contract anniversary;
. Your Immediate Installment Account Value at the end of the second Contract
Year is $100,000. Of this amount, $95,000 is attributable to the initial
Flexible Purchase Payment; the remaining $5,000 is attributable to the
Flexible Purchase Payment paid on the first contract anniversary;
. You have no value in the Guarantee Account;
. You have not previously withdrawn amounts from the Immediate Installment
Account;
. You request a partial withdrawal of $2,000 at the end of year 2;
. At the end of year 2, the access charge for transfers established for the
initial Flexible Purchase Payment is 6%;
. At the end of year 2, the access charge for transfers established for the
second Flexible Purchase Payment is 5% (because there are 60 transfers
remaining).
The amount of withdrawal of value attributable to the initial Flexible
Purchase Payment is $1,900 ($2,000 x $95,000/$100,000). The remaining $100 is
withdrawn from the value attributable to the second Flexible Purchase Payment.
Your access charge will be $119 (6% of $1,900 PLUS 5% of $100). You will
receive a net check of $1,881 assuming there are no premium taxes or income
taxes withheld.
Transfers for the initial Flexible Purchase Payment will be reduced by $12.90
($645 x $2,000/$100,000) so the amount of the transfer subsequent to the
withdrawal will be $632.10. Transfers for the second Flexible Purchase Payment
will be reduced by $1.80 ($90 x $2,000/$100,000) so the amount of its transfer
subsequent to the withdrawal will be $88.20.
EXAMPLE 2
The second example below shows the total impact of the Market Value
Adjustments applicable to future Immediate Installments of $1,000 for 120
months under hypothetical future monthly interest rates.
The example assumes a Flexible Purchase Payment of $90,524 (without the
assessment of any premium tax) and that the level monthly interest rate
determined at payment of the Flexible Purchase Payment is assumed to be 0.50%.
As illustrated below, interest rates are assumed to be volatile during the 3
months following the Flexible Purchase Payment. In the first month following
the Flexible Purchase Payment, monthly interest rates for a similar Flexible
Purchase Payment have dropped to 0.4167%. As a result of this drop, Immediate
Installment Account value increases. In the second month following the
Flexible Purchase Payment, monthly interest rates for a similar Flexible
Purchase Payment have increased to 0.5833%. As a result of this increase,
Immediate Installment Account value decreases. In the third month following
the Flexible Purchase Payment, interest rates for a similar Flexible Purchase
Payment have decreased to 0.5%. As a result of this decrease, the current
level monthly interest rate equals the level monthly interest rate at purchase
and Immediate Installment Account value does not change because of the Market
Value Adjustment.
34

EXAMPLE 3
The third example shows the actual calculation of the Market Value Adjustment
for a representative number of Immediate Installments. The total Market Value
Adjustment at any time will be the sum of the Market Value Adjustments for all
remaining Immediate Installments. The example assumes a Flexible Purchase
Payment of $90,525, Immediate Installments of $1,000 per month for 120 months
and a level monthly interest rate of 5%. No premium taxes are assumed. The
example shows that the present value of the Immediate Installment Account
increases because the current Market Value Adjustment factor is less than the
level monthly interest rate when the Flexible Purchase Payment was allocated
to the Immediate Installment Account.

.The date of valuation and any Market Value Adjustment is one month after the
Flexible Purchase Payment. In that first month, monthly interest rates for a
similar Flexible Purchase Payment have dropped to 0.4167%.
After we calculate the Market Value Adjustment, we determine the Surrender
Value. To determine Surrender Value from the Immediate Installment Account, we
subtract the appropriate access charge (determined separately for the Immediate
Installments of each Flexible Purchase Payment) from the Immediate Installment
Account Value.
We calculate the access charge as a percentage of the Immediate Installment
Account Value withdrawn. The closer the surrender or partial withdrawal is to
the date established for Immediate Installment transfers for that particular
Flexible
35
Purchase Payment to end, the lower the amount of the access charge will be. The
amount of the access charge is as follows:

NUMBER OF YEARS
REMAINING ON EACH
FLEXIBLE PURCHASE ACCESS CHARGE
PAYMENT UNTIL THE DATE (AS A PERCENTAGE OF
ESTABLISHED FOR INSTALLMENT IMMEDIATE INSTALLMENT
TRANSFERS TO END ACCOUNT VALUE WITHDRAWN)
-----------------------------------------------------
6 or more 6%
5 but less than 6 5%
4 but less than 5 4%
3 but less than 4 3%
2 but less than 3 2%
1 but less than 2 1%
0 but less than 1 1%
-----------------------------------------------------

The amount payable for a partial withdrawal or surrender from the Immediate
Installment Account will be:
(1) the amount of the partial withdrawal or surrender MINUS any access
charge; MINUS
(2) any applicable premium taxes.
Because we take the partial withdrawal proportionally from each future
Immediate Installment, the access charge is a weighted average of the access
charge for each such installment. This weighted average is:
(1 MINUS the ratio of Surrender Value for the Immediate Installment Account
to the Immediate Installment Account Value)
The amount payable for a partial withdrawal is therefore the amount of the
partial withdrawal multiplied by the ratio of the Surrender Value for the
Immediate Installment Account to the Immediate Installment Account Value.
WAIVER OF SURRENDER AND ACCESS CHARGES. We will waive all surrender charges
and access charges if you surrender your contract and apply your Contract Value
(PLUS or MINUS any applicable Market Value Adjustment) to one of the following
Optional Payment Plans:
(1) Optional Payment Plan 1 (Life Income with Period Certain);
(2) Optional Payment Plan 2 (Income for a Fixed Period of 10 or more years);
or
(3) Optional Payment Plan 5 (Joint Life and Survivor Income).
If you elect one of the above Optional Payment Plans, then the amount applied
to the plan will be your Contract Value, which includes any applicable Market
Value Adjustment, MINUS any premium tax.
You may also select Optional Payment Plan 3 or Plan 4 upon surrender, although
we will assess surrender charges and access charges (as well as any applicable
Market Value Adjustment and any applicable premium tax) against your Contract
Value. We will apply the Surrender Value to the selected plan. See the
"Optional Payment Plans" provision in this prospectus.
In addition, you may also surrender your contract on the Annuity Commencement
Date (which must be at least 10 years from the date the contract is issued) for
the Contract Value as of that Valuation Day, without any surrender and/or
access charges. In order to receive the lump sum payment, you must notify us at
our Home Office of your intent to receive a lump sum payment on the Annuity
Commencement Date within at least 10 business days and not more than 90 days
prior to your Annuity Commencement Date. You will lose any Guaranteed Minimum
Income Payments upon annuitization if you elect to receive a lump sum payment.
If an Owner dies after notification is received, but prior to the Annuity
Commencement Date, payment will be made in accordance with the "Death Benefit
Upon Death of An Owner Before the Annuity Commencement Date" provision in this
prospectus.
DEDUCTIONS FROM THE VARIABLE ACCOUNT
We deduct from the Subaccount in the Variable Account an amount, computed
daily, equal to an effective annual rate of 1.50% of the average daily net
assets of the Subaccount. We assess this charge when we compute the net
investment factor. The asset charge reduces the value of Accumulation Units and
Annuity Units. The charge consists of an administrative expense charge at an
effective annual rate of 0.15% and a mortality and expense risk charge at an
effective annual rate of 1.35%.
DEDUCTIONS FOR TAXES
We will deduct charges for any premium tax or other tax levied by any
governmental entity either from Purchase Payments or the Contract Value when
the premium tax is incurred or when we pay proceeds under the contract
(proceeds include surrenders, partial withdrawals, Income Payments, and Death
Benefit payments).
The applicable premium tax rates that states and other governmental entities
impose on the purchase of an annuity are subject to change by legislation, by
administrative interpretation, or by judicial action. The amount of premium tax
assessed depends upon the laws of the state in which you reside. The premium
tax generally ranges from 0.0% to 3.5%.
PURCHASE PAYMENTS FOR THE OPTIONAL RIDERS
The cost of the optional riders varies based on the Annuitant's age, gender,
and the amount and duration of the Scheduled
36
Purchase Payments. Payments for all optional riders are due with each Scheduled
Purchase Payment. See the "Fee Tables" for the maximum charge assessed for the
optional riders.
OTHER CHARGES AND DEDUCTIONS
The Total Return Fund incurs certain fees and expenses. To pay for these
charges, the Total Return Fund makes deductions from its assets. The deductions
are described more fully in the prospectus for the Total Return Fund.
We assess interest charges at an effective annual rate of 6% on any missed
Scheduled Installment. In addition, we also assess interest at an effective
annual rate of 6% on any partial withdrawal taken from the Subaccount. This
interest is assessed from the date of the partial withdrawal until the date of
repayment. See "The Contract" and the "Surrenders and Partial Withdrawals"
provisions in this prospectus.
We sell the contracts through registered representatives of broker-dealers.
These registered representatives are also appointed and licensed as insurance
agents of the Company. We pay commissions to broker-dealers for selling the
contracts. You do not directly pay these commissions, we do. We intend to
recover the commissions, marketing, administrative and other expenses and the
cost of contract benefits through fees and charges imposed under the contract.
See the "Sales of the Contract" provision in this prospectus.
THE DEATH BENEFIT
DEATH BENEFIT UPON DEATH OF AN OWNER BEFORE THE ANNUITY COMMENCEMENT DATE
If any Owner, other than a spousal Joint Owner (or Annuitant if the Owner is a
non-natural person) dies before the Annuity Commencement Date, we will pay a
Death Benefit to the Designated Beneficiary.
We calculate the Death Benefit as of the Valuation Day that we receive due
proof of death and all required forms at our Home Office. Until we receive due
proof of death and all required forms, Immediate Installments will continue to
be transferred from the Immediate Installment Account, and Purchase Payments,
if received, will continue to be applied to the Immediate Installment Account,
Guarantee Account and/or the Subaccount, as appropriate. Further, until we
receive complete written settlement instructions from the Designated
Beneficiary, values adjusted for transfers will remain in the Variable Account,
the Guarantee Account, and the Immediate Installment Account. The Death Benefit
therefore will fluctuate with the performance of the Variable Account.
Upon receipt of due proof of death (generally, due proof is a certified copy of
the death certificate or a certified copy of the decree of a court of competent
jurisdiction as to a finding of death) and all required forms, we will process
the Death Benefit in accordance with your or your Designated Beneficiary's
instructions, subject to distribution rules and termination of contract
provision discussed in the contract and elsewhere in this prospectus.
Unless otherwise required to be distributed pursuant to the distribution rules
stated below, we will pay Death Benefit proceeds in a lump sum unless you or
your Designated Beneficiary elect one of our Optional Payment Plans. See the
"Optional Payment Plans" provision in this prospectus.
DEATH BENEFIT AMOUNT
The Death Benefit equals the greater of:
. the sum of Purchase Payments received (excluding payments made for any
available optional riders) MINUS partial withdrawals as of the Valuation
Day we receive due proof of death and all required forms at our Home
Office; and
. the Contract Value (including any Market Value Adjustment for any amounts
withdrawn from the Immediate Installment Account) as of the Valuation Day
we receive due proof of death and all required forms at our Home Office.
REQUIRED DISTRIBUTIONS
In certain circumstances, federal tax law requires that distributions be made
under the contract upon the death of:
. an Owner or Joint Owner; or
. the Annuitant or Joint Annuitant, if any Owner is a non-natural person
(i.e., an entity, such as a trust or corporation).
The discussion below describes the methods available for distributing the value
of the contract upon death.
At the death of any Owner (or any Annuitant, if the Owner is a non-natural
entity), the person or entity first listed below who is alive or in existence
on the date of that death will become the Designated Beneficiary:
(1) Owner or Joint Owner;
(2) Primary Beneficiary;
(3) Contingent Beneficiary; or
(4) Owner's estate.
37
If there is more than one Designated Beneficiary, we will treat each one
separately in applying the distribution rules prescribed by the tax laws as
briefly described in the "Distribution Rules" provision below.
We should be notified immediately by telephone or in writing upon the death of
an Owner or an Annuitant. We have the right to request that any notification of
death given by telephone be immediately followed by written notification. Upon
notification, no additional Purchase Payments will be accepted (unless the
Designated Beneficiary is the spouse of the deceased and that spousal
beneficiary has elected to continue the contract). Due proof of death consists
of a death certificate issued by a government jurisdiction or a court of law.
Any required forms can consist of information necessary in order to pay any
named Designated Beneficiary(ies) and any other information necessary to
process applicable proceeds.
DISTRIBUTION RULES
The distributions required by federal tax law differ depending on whether the
Designated Beneficiary is the spouse of the deceased Owner (or of the
Annuitant, if the contract is owned by a non-natural entity). Upon receipt of
due proof of death and all required forms, the Designated Beneficiary will
instruct us how to treat the proceeds subject to the distribution rules
discussed below.
. SPOUSES -- If the Designated Beneficiary is the surviving spouse of the
deceased and a Joint Annuitant, except under certain types of Qualified
Contracts, we will continue the contract in force with the surviving
spouse as the new Owner and as the sole Annuitant. For contracts issued as
IRAs (or custodial IRAs), if the Designated Beneficiary is the surviving
spouse of the deceased and a Joint Annuitant, then the surviving spouse
(or the custodian for the benefit of the surviving spouse) may continue
the contract. At the death of the surviving spouse, this provision may not
be used again, even if the surviving spouse remarries. In that case, the
rules for non-spouses will apply. If the Designated Beneficiary is the
surviving spouse of the deceased person but not a Joint Annuitant, the
rules for non-spouses will apply.
. NON-SPOUSES -- If the Designated Beneficiary is not the surviving spouse
of the deceased person, the contract cannot be continued in force
indefinitely. Instead, upon the death of any Owner (or any Annuitant, if
any Owner is a non-natural entity), payments must be made to (or for the
benefit of) the Designated Beneficiary under one of the following payment
choices:
(1) receive the Death Benefit and any interest that has been earned in
one lump sum payment upon receipt of due proof of death and all
required forms;
(2) receive the Death Benefit at any time during the five year period
following the date of death. See the "Requesting Payments" provision
in this prospectus;
(3) apply the Death Benefit to provide an Income Payment under Optional
Payment Plan 1 or Optional Payment Plan 2. The first Income Payment
must be made no later than one year after the date of death. In
addition, if Optional Payment Plan 1 is chosen, the period certain
cannot exceed the designated beneficiary's life expectancy, and if
Optional Payment Plan 2 is chosen, the fixed period cannot exceed the
designated beneficiary's life expectancy.
If the Designated Beneficiary makes no choice within 30 days following receipt
of due proof of death and all required forms at our Home Office, we will pay
the Death Benefit at any time during the five year period following the date of
death (number (2) above). Due proof of death must be provided within 90 days of
the date of death. If due proof of death is not provided within 90 days of the
date of death, we will pay the Contract Value as of the Valuation Day of
receipt of due proof of death. We will not accept any Purchase Payments after
we receive due proof of the non-spouse's death. If the Designated Beneficiary
dies before we distribute the entire Death Benefit, we will pay in a lump sum
any value remaining to the person named by the Designated Beneficiary. If no
person is so named, we will pay the Designated Beneficiary's estate.
Under numbers (1) and (2) above, the contract will terminate when we pay the
Death Benefit. Under number (3) above, this contract will terminate when we
apply the Death Benefit to provide Income Payments.
Within 30 days of the date of receipt of due proof of death and all required
forms, a non-spousal Joint Annuitant that is also the surviving Owner may use
the proceeds from number (1) above to purchase a contract with current terms
and values substantially similar to this contract, as of the date of receipt of
due proof of death and all required forms, including but not limited to the
Guaranteed Minimum Income Payment, the value in each investment, Scheduled
Installments, Scheduled Purchase Payments, surrender and access charges, and
the Annuity Commencement Date. Any missed Scheduled Installments will still be
due.
DEATH BENEFIT AFTER THE ANNUITY COMMENCEMENT DATE
If any Annuitant dies after the Annuity Commencement Date, monthly Income
Payments will be made as stated in the section
38
discussing monthly Income Payments. See the "Benefits at Annuity Commencement
Date" provision in this prospectus.
BENEFITS AT ANNUITY COMMENCEMENT DATE
You must select an Annuity Commencement Date on your application. In order to
receive Guaranteed Minimum Income Payments under this contract, all contract
requirements must be met. The Annuity Commencement Date selected at the time of
application must be at least 10 years from the date the contract is issued and
may not be changed once the contract is issued. The Annuity Commencement Date
cannot be any later than the contract anniversary following the Annuitant's
90th birthday (or younger Annuitant's 90th birthday in the case of Joint
Annuitants). If your contract was purchased in conjunction with an Annuity
Cross Funding Program, your Annuity Commencement Date for this contract and the
Funding Annuity must be same. IF YOU CHANGE THE ANNUITY COMMENCEMENT DATE UNDER
THE FUNDING ANNUITY CONTRACT, YOU WILL NO LONGER BE ELIGIBLE FOR GUARANTEED
MINIMUM INCOME PAYMENTS.
If the sole or last surviving Annuitant is still living on the Annuity
Commencement Date and you have met all contractual requirements, we will pay
you or your designated payee the monthly Income Payments that are guaranteed
not to go below the minimum amount as stated on your contract's Data Pages and
as described below beginning on that date unless you elected to receive payment
in a lump sum. As provided in your contract, we may adjust the Annuitant(s)'
age(s) used to determine the first Annual Variable Annuity Benefit, and we may
deduct premium taxes from your payments.
Monthly Income Payments are made under a life Income Payment plan with a period
certain of 10, 15, 20, 25, 30, 35, 40, 45, or 50 years. If you do not select a
period certain we will use a life Income Payment plan with a 10 year period
certain. If the Annuitant dies after the Annuity Commencement Date, AND monthly
Income Payments were being made under a life Income Payment plan with a period
certain, payments will continue to be made to the named Beneficiary(ies) until
the end of the period certain. For instance, if monthly Income Payments are
being paid under a life Income Payment plan with a period certain of 20 years
and the Annuitant dies in the 10th year of monthly Income Payments, payments
will continue to be made to the Annuitant's named Beneficiary(ies) for a period
of 10 more years.
We determine your monthly Income Payments when the guarantee is in effect based
on the Calculated Level Monthly Benefit. The Calculated Level Monthly Benefit
is derived from the Annual Variable Annuity Benefit. The Calculated Level
Monthly Benefit is one-twelfth of the Annual Variable Annuity Benefit PLUS
level interest over a twelve-month period. The interest rate for each Annuity
Year is the rate we declare for a twelve-month certain single purchase payment
immediate fixed annuity, as of the Annuity Commencement Date or applicable
Annuity Commencement Date Anniversary, for this contract.
The dollar amount of the first Annual Variable Annuity Benefit is a function of:
. the amount of your Contract Value on the Annuity Commencement Date; and
. the annuity purchase rates shown in your contract.
The annuity purchase rates vary based on the age (and, for certain contracts,
gender) of the Annuitant(s) as well as the certain period that was selected.
Generally, the longer the life expectancy of the Annuitant(s) or the longer the
certain period selected, the smaller the first Annual Variable Annuity Benefit
will be. The benefit is calculated by:
(1) dividing the Contract Value on the Annuity Commencement Date (less any
applicable premium tax) by $1,000; and
(2) multiplying the result by the applicable annuity purchase rate.
This amount is then "applied" to "acquire" Annuity Units. We determine the
number of Annuity Units credited to a contract by dividing the dollar amount of
the first Annual Variable Annuity Benefit by the Annuity Unit value for the
Valuation Period ending on the Annuity Commencement Date or the first Valuation
Period ending after the Annuity Commencement Date if the Annuity Commencement
Date falls on a date when the New York Stock Exchange is closed or the Total
Return Fund does not value its shares. The value of your Annuity Units changes
daily as a result of the investment performance of the Subaccount.
We determine the dollar amount of each subsequent Annual Variable Annuity
Benefit on each anniversary of the Annuity Commencement Date by multiplying the
Annuity Unit value for the Valuation Period, or the first Valuation Period
ending after the Annuity Commencement Date if the anniversary of the Annuity
Commencement Date falls on a date when the New York Stock Exchange is closed or
on a date when the Total Return Fund does not value its shares by the number of
Annuity Units credited to the contract.
The Annuity Unit value equals (a) x (b) where:
(a) equals the Annuity Unit value for the preceding Valuation Period; and
39
(b) equals (i) x (ii) where:
(i) is the net investment factor for the Valuation Period for which we
are calculating the Annuity Unit value; and
(ii) is an assumed discount rate equal to .99990575 raised to a power
equal to the number of days in the Valuation Period.
If the Guaranteed Minimum Income Payment does not apply and the net investment
return for the Subaccount over an Annuity Year is equal to 3.5% (the interest
rate we use in calculating the amount of the Annual Variable Annuity Benefit),
the Annual Variable Annuity Benefit for that Annuity Year will equal the
benefit for the prior year. To the extent that such net investment return
exceeds 3.5% for an Annuity Year, the Annual Variable Annuity Benefit for that
Annuity Year will be greater than the benefit for the prior year. To the extent
that such net investment return falls short of 3.5% for an Annuity Year, the
Annual Variable Annuity Benefit for that Annuity Year will be less than the
benefit for the prior year.
GUARANTEED MINIMUM INCOME PAYMENTS
If the Guaranteed Minimum Income Payment is in Effect
If you meet the conditions required under the contract for receipt of
Guaranteed Minimum Income Payments (that is, within the time allowed, you paid
all your Scheduled Installments and repaid the amount of any withdrawal
received from the Subaccount PLUS interest and your Annuity Commencement Date
was at least 10 years from the date the contract was issued), your monthly
Income Payments after the Annuity Commencement Date will be at least equal to
the Guaranteed Minimum Income Payments.
We will calculate your initial Calculated Level Monthly Benefit as discussed
above under the "Benefits at Annuity Commencement Date" provision in this
prospectus. If the initial monthly Income Payment is less than the Guaranteed
Minimum Income Payment, your initial monthly Income Payment will equal the
Guaranteed Minimum Income Payment. If this occurs, we will track the difference
in the Adjustment Account that we establish on the Annuity Commencement Date.
The value of the Adjustment Account will equal the greater of (a) and (b),
where:
(a) is zero (0); and
(b) is 12 times the Guaranteed Minimum Income Payment MINUS 12 times the
initial Calculated Level Monthly Benefit.
Monthly Income Payments will remain constant for an Annuity Year. At the
beginning of each subsequent Annuity Year, we will determine the amount of the
monthly Income Payments for that Annuity Year.
For monthly Income Payments after the first Annuity Year, the actual payment is
the greater of (a) and (b), where:
(a) is the subsequent Calculated Level Monthly Income Benefit MINUS 1/12 of
any value in the Adjustment Account as of the date of the last monthly
Income Payment; and
(b) is the Guaranteed Minimum Income Payment.
For subsequent monthly Income Payments after the first Annuity Year, the value
of the Adjustment Account will be the greater of (a) and (b), where:
(a) is zero (0); and
(b) is the value of the Adjustment Account as of the date that we determined
the last monthly Income Payment, PLUS 12 times the actual subsequent
monthly Income Payment, MINUS 12 times the subsequent Calculated Level
Monthly Benefit.
In other words, you will not receive any of the Subaccount's gain until the
Adjustment Account has been repaid from any future performance of the
Subaccount.
The Guaranteed Minimum Income Payment is determined at contract issue and is
based on many factors. Individuals with the same factors will receive the same
Guaranteed Minimum Income Payment. The factors include ages(s), gender(s),
purchase date, Annuity Commencement Date chosen, Scheduled Installments, period
certain, mortality, assumed interest rate, state in which the contract is
issued, state premium tax (if any), and whether the contract is qualified or
non-qualified.
Reduced Guaranteed Minimum Income Payments
For contracts issued as Non-Qualified Contracts participating in the Annuity
Cross Funding Program, you may be entitled to reduced Guaranteed Minimum Income
Payments if you lose your right to full Guaranteed Minimum Income Payments,
provided the contract is still in effect as of the Default Date (described
below) and you have made all Scheduled Installments for a period of at least 60
months. For Qualified Contracts, you may be entitled to reduced Guaranteed
Minimum Income Payments if you lose your right to full Guaranteed Minimum
Income Payments, provided your contract is still in effect as of the Default
Date. The Annuity Cross Funding Program is not available for contracts issued
on or after August 17, 2004.
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The Valuation Day you lose your right to full Guaranteed Minimum Income
Payments under the contract is considered the "Default Date." You will lose
your right to full Guaranteed Minimum Income Payments under the contract when
you:
. Miss a Scheduled Installment and do not pay that Scheduled Installment
within 12 months of the date it was due, PLUS interest at an effective
annual rate of 6% and any applicable monthly billing fees. You may make no
more than 24 Scheduled Installments outside the grace period over the life
of your contract. See the "Reinstatement" provision in this prospectus;
and/or
. Take any withdrawals from the Subaccount and do not repay the amount
withdrawn from the Subaccount within 12 months from the date of the
withdrawal, PLUS interest at an effective annual rate of 6%.
If the due date of any missed payment falls on any date on which the New York
Stock Exchange is not open for regular trading or on a date on which the Total
Return Fund does not value its shares, the due date will occur on the next
Valuation Day.
We will calculate the reduced Guaranteed Minimum Income Payment by taking (a)
divided by (b) multiplied by (c), where:
(a) is the total of Scheduled Installments paid to the Subaccount and not
previously withdrawn prior to the Default Date;
(b) is the total Scheduled Installments that are required to be paid into
the Subaccount prior to the Annuity Commencement Date as shown on your
contract's Data Pages (this date must be a date at least 10 years from
the date the contract is issued); and
(c) is the Guaranteed Minimum Income Payment (as shown on your contract's
Data Pages).
Once the reduced Guaranteed Minimum Income Payment amount has been determined,
we will not recalculate it again, even if subsequent Purchase Payments are
made. In addition,
. if partial withdrawals are taken from the Subaccount once the reduced
Guaranteed Minimum Income Payment has been determined and you do not repay
the partial withdrawals with interest, you will lose your right to
Guaranteed Minimum Income Payments;
. we will not further reduce your Guaranteed Minimum Income Payments as
described above;
. you may not begin Income Payments prior to the Annuity Commencement Date
and still receive reduced Guaranteed Minimum Income Payments.
If the Guaranteed Minimum Income Payment is not in Effect
If the Guaranteed Minimum Income Payment is not in effect, you may still
receive Income Payments or elect to forego Income Payments and receive the
value of the contract on or before the Annuity Commencement Date in the form of
a lump sum payment. If you elect to receive Income Payments, your actual Income
Payments will be in the form of an annual variable Income Payment similar to a
variable Income Payment described above under the "Benefits at Annuity
Commencement Date" provision. There will be no Adjustment Account established.
OPTIONAL PAYMENT PLANS
You may apply your Death Benefit proceeds or your Surrender Value to an
Optional Payment Plan. You will lose any Guaranteed Minimum Income Payments if
you elect to apply your Surrender Value or Death Proceeds to an Optional
Payment Plan. The terms of the Optional Payment Plan elected will then become
applicable. If you surrender the contract and select Optional Payment Plan 1,
Optional Payment Plan 2 (with a period certain of 10 or more years), or
Optional Payment Plan 5, the amount applied to the Optional Payment Plan is the
Contract Value, which includes any applicable Market Value Adjustment, MINUS
any applicable premium tax. The amount we apply to calculate Income Payments is
net of any applicable premium tax.
During the Annuitant's life, and before Income Payments begin, you (or the
Designated Beneficiary at your death) can choose an Optional Payment Plan. If
you change a Designated Beneficiary, your Optional Payment Plan selection will
remain in effect unless you make a new selection. Any election or change in an
Optional Payment Plan must be sent to our Home Office in a form acceptable to
us. We do not allow any changes after Income Payments begin. If an Optional
Payment Plan has not been chosen at the death of the Annuitant or Owner, your
Designated Beneficiary can choose an Optional Payment Plan when we pay the
Death Benefit. See "The Death Benefit" provision in this prospectus.
We will make Income Payments under one of the Optional Payment Plans annually.
The amount of each payment under an Optional Payment Plan must be at least
$100. Payments made under an Optional Payment Plan at the death of any Owner
(or the Annuitant if the Owner is a non-natural person), must conform to the
rules outlined in the "Death Benefit" provision.
We may make an age adjustment to determine the amount of the Income Payments.
We will adjust the age according to the age adjustment table shown in your
contract.
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The Optional Payment Plans listed below are available with fixed or variable
payments. You must select one or the other; a combination is not permitted.
FIXED INCOME PAYMENTS. We will transfer proceeds applied to a fixed income
option to our General Account. Payments made will equal or exceed those
required by the state where we deliver the contract. We determine fixed Income
Payments on the date we receive due proof of the Owner's death or on surrender.
Payments under Optional Payment Plan 4 (Interest Income) will begin at the end
of the first interest period after the date proceeds are otherwise payable.
VARIABLE INCOME PAYMENTS. We will transfer proceeds applied to a variable
income option to the Subaccount. Your Income Payments, after the first payment,
will reflect the investment experience of the Subaccount. NO MINIMUM AMOUNT IS
GUARANTEED. Income Payments begin after the date we receive due proof of any
Owner's death or a surrender. We will calculate your variable Income Payments
in the manner described above under the "Benefits at Annuity Commencement Date"
provision of this prospectus.
The following Optional Payment Plans are available under the contract:
OPTIONAL PAYMENT PLANS. The contract provides five Optional Payment Plans; all
are available on a fixed basis. Optional Payment Plans 1 and 5 are available on
a variable basis. If any payee is not a natural person, our consent must be
obtained before selecting an Optional Payment Plan. Guaranteed amounts payable
are determined assuming an interest rate of 3.5% compounded yearly. We may
increase this rate and the amount of any payment. Following are explanations of
the Optional Payment Plans available.
OPTIONAL PAYMENT PLAN 1 -- LIFE INCOME WITH PERIOD CERTAIN. This option
guarantees periodic payments for the lifetime of the payee with a minimum
number of years of payments. If the payee lives longer than the minimum
period, payments will continue for his or her life. The minimum period can
be 10, 15, or 20 years. Payments are determined according to the table in
the Monthly Income Benefit section of your contract. We determine the
guaranteed amounts payable under the plan. The payee selects the designated
period. If the payee dies during the minimum period, we may offer to pay the
discounted sum of the remaining guaranteed payments in one payment.
OPTIONAL PAYMENT PLAN 2 -- INCOME FOR A FIXED PERIOD. This option
guarantees periodic payments for a fixed period not longer than 30 years.
Payments will be made in accordance with the table in your contract. If the
payee dies, we may offer to pay the discounted amount of the remaining
guaranteed payments in one payment.
OPTIONAL PAYMENT PLAN 3 -- INCOME OF A DEFINITE AMOUNT. This option
provides for periodic payments of a definite amount to be paid. The amount
paid each year must be at least $120 for each $1,000 of proceeds. Payments
will continue until the proceeds are exhausted. The last payment will equal
the amount of any unpaid proceeds. If we increase the interest rate on
amounts payable above the guaranteed rate, we will extend the payment
period. If the payee dies, we may offer to pay the amount of the remaining
proceeds with earned interest in one payment.
OPTIONAL PAYMENT PLAN 4 -- INTEREST INCOME. This option provides for
periodic payments of interest earned from the proceeds left with us.
Payments will begin at the end of the first period chosen. If the payee
dies, we will pay the amount of remaining proceeds and any earned but unpaid
interest in one payment.
OPTIONAL PAYMENT PLAN 5 -- JOINT LIFE AND SURVIVOR INCOME. This option
provides for us to make periodic payments to two payees for a guaranteed
minimum of 10 years. Each payee must be at least 35 years old when payments
begin. Payments will continue as long as either payee is living. If both
payees die before the end of the minimum period, we may offer to pay the
discounted amount of the remaining payments for the 10-year period in one
payment to the survivor's estate, unless otherwise provided.
If the payee is not a natural person, our consent must be obtained before
selecting an Optional Payment Plan. Fixed income payments, if selected, will
begin on the date we receive due proof of the Annuitant's death, on surrender,
or on the contract's Annuity Commencement Date. Variable income payments will
begin within 7 days after the date payments would begin under the corresponding
fixed option. Payments under Optional Payment Plan 4 (Interest Income) will
begin at the end of the first interest period after the date proceeds are
otherwise payable.
All payments under Option Payment Plan 2 (Income for a Fixed Period), Optional
Payment Plan 3 (Income of a Definite Amount) and Optional Payment Plan 4
(Interest Income) may be redeemed by the payee upon written request to our Home
Office. Payments made under Optional Payment Plan 1 (Life Income with Period
Certain) and Optional Payment Plan 5 (Joint Life and Survivor Income) are not
redeemable. If payments under Optional Payment Plans 2, Optional Payment 3 or
Optional Payment 4 are variable income payments, and a request for redemption
is received in good order, the payment will be made within 7 days in accordance
with the "Surrenders and Partial Withdrawals" provision. If payments under
Optional
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Payment Plans 2, Optional Payment 3 or Optional Payment 4 are fixed income
payments, and a request for redemption is received in good order, the payment
will generally be made within 7 days, however, some states require us to
reserve the right to defer payments from the General Account for up to six
months from the date we receive the request for payment.
FEDERAL INCOME TAX MATTERS
INTRODUCTION
This part of the prospectus discusses the Federal income tax treatment of the
contract. The Federal income tax treatment of the contract is complex and
sometimes uncertain. The Federal income tax rules may vary with your particular
circumstances. This discussion does not address all of the federal income tax
rules that may affect you and your contract. This discussion also does not
address other Federal tax consequences, or state or local tax consequences,
associated with a contract. As a result, you should always consult a tax
adviser about the application of tax rules to your individual situation.
TAXATION OF NON-QUALIFIED CONTRACTS
This part of the discussion describes some of the Federal income tax rules
applicable to Non-Qualified Contracts. A Non-Qualified Contract is a contract
not issued in connection with a retirement plan receiving special tax treatment
under the Code, such as an individual retirement annuity or a Section 401(k)
plan.
TAX DEFERRAL ON EARNINGS. The Federal income tax law does not tax any increase
in an Owner's Contract Value until there is a distribution from the contract.
However, certain requirements must be satisfied in order for this general rule
to apply, including:
. an individual must own the contract (or the tax law must treat the
contract as owned by an individual);
. the investments of the Variable Account must be "adequately diversified"
in accordance with regulations of the Internal Revenue Service ("IRS"); and
. the contract's Annuity Commencement Date must not occur near the end of
the Annuitant's life expectancy.
CONTRACTS NOT OWNED BY AN INDIVIDUAL -- NO TAX DEFERRAL AND LOSS OF INTEREST
DEDUCTION. As a general rule, the Code does not treat a contract that is owned
by an entity (rather than an individual) as an annuity contract for Federal
income tax purposes. The entity owning the contract pays tax each year on the
annual increase in Contract Value over the annual Purchase Payments applied to
the contract. Contracts issued to a corporation or a trust are examples of
contracts where the Owner is currently taxed on the contract's earnings.
There are several exceptions to this rule. For example, the Code treats a
contract as owned by an individual if the nominal owner is a trust or other
entity that holds the contract as an agent for an individual. However, this
exception does not apply in the case of any employer that owns a contract to
provide non-qualified deferred compensation for its employees.
In the case of a contract issued after June 8, 1997 to a taxpayer that is not
an individual, or a contract held for the benefit of an entity, the entity will
lose its deduction for a portion of its otherwise deductible interest expenses.
This disallowance does not apply if the nonnatural Owner (entity) is taxable on
the annual increase in the Contract Value in excess of the Purchase Payments
made that year. Entities that are considering purchasing the contract, or
entities that will benefit from someone else's ownership of a contract, should
consult a tax adviser.
INVESTMENTS IN THE VARIABLE ACCOUNT MUST BE DIVERSIFIED. For a contract to be
treated as an annuity contract for Federal income tax purposes, the investments
of a separate account such as the Variable Account must be "adequately
diversified." The IRS has issued regulations that prescribe standards for
determining whether the investments of the Variable Account are adequately
diversified. If the Variable Account fails to comply with these diversification
standards, the Owner could be required to pay tax for the year of such failure
on the untaxed income accumulated in the contract and for each subsequent year
on that year's income under the contract.
Although we do not control the investments of the Total Return Fund, we expect
that the Total Return Fund will comply with IRS regulations so that the
Variable Account will be considered "adequately diversified."
AGE AT WHICH INCOME PAYMENTS MUST BEGIN. Federal income tax rules do not
expressly identify a particular age by which Income Payments must begin.
However, those rules do require that an annuity contract provide for
amortization, through Income Payments of the contract's Purchase Payments paid
and earnings. If Income Payments begin or are scheduled to begin at a date that
the IRS determines does not satisfy these rules, interest and gains under the
contract could be taxable each year as they accrue.
NO GUARANTEES REGARDING TAX TREATMENT. We make no guarantees regarding the tax
treatment of any contract or of any transaction involving a contract. However,
the remainder of this discussion assumes that your contract will be treated as
an annuity contract for Federal income tax purposes and that the tax law will
not impose tax on any increase in your Contract Value until there is a
distribution from your contract.
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PARTIAL WITHDRAWALS AND FULL SURRENDER. A partial withdrawal occurs when you
receive less than the total amount of the contract's Surrender Value. In the
case of a partial withdrawal, you will pay tax on the amount you receive to the
extent your Contract Value before the partial withdrawal exceeds your
"investment in the contract." (This term is explained below.) IRS rules are
unclear, but with respect to an actual withdrawal or other transactions (such
as an assignment or a gift) that is treated as a withdrawal for tax purposes,
it is possible that you will pay tax to the extent the remaining amount
available under the benefit exceeds your "investment in the contract." This
income (and all other income from your contract) is ordinary income. The Code
imposes a higher rate of tax on ordinary income than it does on capital gains.
A full surrender occurs when you receive the total amount of the contract's
Surrender Value. In the case of a full surrender, you will pay tax on the
amount you receive to the extent it exceeds your "investment in the contract."
Your "investment in the contract" generally equals the total of your Purchase
Payments under the contract, reduced by any amounts you previously received
from the contract that you did not include in your income.
It is possible that certain additional amounts could be included in the gain
under your contract for purposes of determining the tax treatment of
withdrawals, e.g., amounts attributable to the Guaranteed Minimum Income
Payment feature of the contract, amounts attributable to the Market Value
Adjustment feature, or to benefits under the Disability Benefit Rider Option.
ASSIGNMENTS AND PLEDGES. The Code treats any assignment or pledge of (or
agreement to assign or pledge) all or a portion of your Contract Value as a
partial withdrawal or a full surrender, as the case may be.
GIFTING A CONTRACT. If you transfer ownership of your contract -- without
receiving full and adequate consideration -- to a person other than your spouse
(or to your former spouse incident to divorce), you will pay tax on your
Contract Value to the extent it exceeds your "investment in the contract" (as
defined above). In such a case, the new owner's "investment in the contract"
will be increased to reflect the amount included in your income.
TAXATION OF INCOME PAYMENTS. The Code imposes tax on a portion of each Income
Payment (at ordinary income tax rates) and treats a portion as a nontaxable
return of your "investment in the contract." We will notify you annually of the
taxable amount of your Income Payment.
Pursuant to the Code, you will pay tax on the full amount of your Income
Payments once you have recovered the total amount of the "investment in the
contract." If Income Payments cease because of the death of the Annuitant(s)
and before the total amount of the "investment in the contract" has been
recovered, the unrecovered amount generally will be deductible.
If Optional Payment Plan 4 is selected, you will be taxed in the same manner as
a full surrender of the contract. Interest credited under Optional Payment Plan
4, whether or not paid, will be included in the current income of the Owner of
the contract. This treatment could also apply to Plan 3 depending on the
relationship of the amount of the periodic payments to the period over which
they are paid.
TAXATION OF DEATH BENEFITS. We may distribute amounts from your contract
because of the death of an Owner, a Joint Owner, or if an Owner is a
non-natural person, an Annuitant. The tax treatment of these amounts depends on
whether the Owner, Joint Owner, or Annuitant dies before or after the
contract's Annuity Commencement Date.
Before the contract's Annuity Commencement Date.
. The Death Benefit is taxed in the same manner as Income Payments, if
received under an Optional Payment Plan.
. If not received under an Optional Payment Plan, the Death Benefit is taxed
in the same manner as a surrender or a partial withdrawal depending on the
manner in which the Death Benefit is paid.
After the contract's Annuity Commencement Date.
. The Death Benefit is includible in income to the extent it exceeds the
unrecovered "investment in the contract," provided the Death Benefit is
received in accordance with the existing Optional Payment Plan. All Income
Payments in excess of the unrecovered "investment in the contract" are
includible in income.
The tax law imposes tax on a Death Benefit received in a lump sum to the extent
that it exceeds the unrecovered "investment in the contract" at the time of
payment.
PENALTY TAXES PAYABLE ON PARTIAL WITHDRAWALS, SURRENDER, OR INCOME
PAYMENTS. The Code may impose a penalty tax equal to 10% of the amount of any
payment from your contract that is included in your gross income. The Code does
not impose the 10% penalty tax if one of several exceptions applies. These
exceptions include partial withdrawals, surrender or Income Payments that:
. you receive on or after you reach age 59 1/2;
. you receive because you became disabled (as defined in the tax law);
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. you receive as a series of substantially equal periodic payments for the
life (or life expectancy) of the taxpayer or the joint lives of the
taxpayer and his designated beneficiary; or
. the beneficiary receives on or after the death of the Owner (or the
Annuitant, if the Owner is not a natural person).
MEDICARE TAX. Beginning in 2013, distributions from Non-Qualified Contracts
will be considered "investment income" for purposes of the newly enacted
Medicare tax on investment income. Thus, in certain circumstances, a 3.8% tax
may be applied to some or all of the taxable portion of distributions
(e.g. earnings) to individuals whose income exceeds certain threshold amounts
($200,000 for filing single, $250,000 for married filing jointly and $125,000
for married filing separately.) Please consult a tax adviser for more
information.
SPECIAL RULES IF YOU OWN MORE THAN ONE CONTRACT. In certain circumstances, you
may have to combine some or all of the Non-Qualified Contracts you own in order
to determine the amount of an Income Payment, surrender, or partial withdrawal
that you must include in income. For example:
. if you purchase a contract offered by this prospectus and also purchase at
approximately the same time an immediate annuity, the IRS may treat the
two contracts as one contract;
. if you purchase two or more deferred annuity contracts from the same life
insurance company (or one of its affiliates) during any calendar year, the
Code treats all such contracts as one contract for certain purposes.
The effects of these special rules are not clear. However, these rules could
affect:
. the amount of a surrender, partial withdrawal or Income Payment that you
must include in income; and
. the amount that might be subject to a penalty tax.
TAX TREATMENT OF BENEFITS PROVIDED BY RIDER OPTION. So long as you participate
in the Annuity Cross Funding Program, the contract may be issued with certain
riders, that provide benefits upon unemployment, disability, or death. These
benefits include the waiver of Scheduled Installments relating to entitlement
to Guaranteed Minimum Income Payments, and also certain increases in Income
Payments that are calculated on the Annuity Commencement Date.
The tax treatment of these benefits is not clear in all instances. For example,
while benefits attributable to the Unemployment Benefit Rider Option will be
taxable, there is uncertainty regarding the amount and timing of the taxation
of benefits under this rider. Benefits from this rider may be treated as
taxable at the time Income Payments are received, or they may be treated as
taxable upon the Annuity Commencement Date. Any amount treated as taxable upon
the Annuity Commencement Date would increase the investment in the contract.
With respect to the Disability Benefit Rider Option and Joint Annuitant Life
Benefit Rider Option, a portion of benefits may be excludable from income.
There is uncertainty, however, regarding the scope of any available exclusion,
as well as the time when any non-excludable benefits would be subject to tax.
We will report to you and to the IRS on Form 1099 that portion of any rider
benefits which we believe is subject to tax.
SECTION 1035 EXCHANGES. Under section 1035 of the Code, the exchange of one
annuity contract (or a life insurance contract) for another annuity contract
generally is not taxed (unless cash is distributed). To qualify as a nontaxable
exchange however, certain conditions must be satisfied, e.g., the obligee(s)
under the new annuity contract must be the same obligee(s) as under the
original contract. We do not permit an owner to partially exchange this
contract for another annuity contract.
If this contract has been purchased in whole or part by exchanging part of a
life insurance or annuity contract, certain subsequent transactions may cause
the IRS to retrospectively treat the partial Section 1035 exchange as taxable.
We intend to administer the contract without regard to the partially exchanged
funding contract and disclaim any responsibility for monitoring events that
could cause the IRS to examine the completed partial Section 1035 exchange. We
do not intend to inform another insurance company of any transaction involving
this contract or, except when required by IRS forms or regulations, to report
any such transaction. Owners contemplating any transaction, involving this
contract or a partially exchanged contract funding this contract, within twelve
months of a partial Section 1035 exchange are strongly advised to consult a tax
adviser.
Upon death of a non-spousal Joint Owner, the contract provides the surviving
Joint Owner with the option of using the proceeds of this contract to purchase
a separate annuity contract with terms and values that are substantially
similar to those of this contract. Exercise of this option will not qualify as
a tax-free exchange under section 1035.
Beginning in 2010, the owner may exchange the contract under Section 1035 of
the Code for a long-term care contract. We believe that the provisions of the
Pension Protection Act of 2006 establishing annuity to long-term care Section
1035 exchanges would permit the owner to exchange a portion of the contract to
pay the annual or other periodic premium for a
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long-term care contract issued by us or another insurance company. The IRS has
not issued any guidance on such transactions or on the allocation of basis that
would be required to effect them. It is possible that the IRS could take a
narrow view of the 2006 legislation and treat partial Section 1035 exchanges to
pay long-term care premiums as taxable withdrawals from the contract.
Currently, we do not permit an owner to partially exchange this contract to
purchase a long-term care contract or pay long-term care premiums. If all or a
portion of the contract is used to purchase long-term care insurance in a
Section 1035 exchange, the amount so used representing income on the contract
would not be tax-deductible as a medical expense and the amount so used
representing investment in the contract may not be tax-deductible as a medical
expense. Any owner contemplating the use of the contract to fund long-term care
insurance or long-term care expenses should consult a tax adviser.
QUALIFIED RETIREMENT PLANS
We also designed the contracts for use in connection with certain types of
retirement plans that receive favorable treatment under the Code. Contracts
issued to or in connection with retirement plans that receive special tax
treatment are called "Qualified Contracts." We do not currently offer all of
the types of Qualified Contracts described, and may not offer them in the
future. Prospective purchasers should contact our Home Office to learn of the
availability of Qualified Contracts at any given time.
The contract includes attributes such as tax deferral on accumulated earnings.
Qualified retirement plans provide their own tax deferral benefit. The purchase
of this contract as an investment of a qualified retirement plan does not
provide additional tax deferral benefits beyond those provided in the qualified
retirement plan. If you are purchasing this contract as a Qualified Contract,
you should consider purchasing this contract for its Death Benefit, income
benefits and other non-tax benefits. Please consult a tax adviser for
information specific to your circumstances in order to determine whether this
contract is an appropriate investment for you.
The Federal income tax rules applicable to qualified plans are complex and
varied. As a result, this prospectus makes no attempt to provide more than
general information about use of the contract with the various types of
qualified plans and individual retirement arrangements. Persons intending to
use the contract in connection with a qualified plan should obtain advice from
a tax adviser.
TYPES OF QUALIFIED CONTRACTS. At present, the contract may be used in
conjunction with qualified corporate employee pension and profit-sharing plans
("401(a) plans"), including "401(k) plans," and qualified annuity plans
("403(a) plans"). The contract may also be used as or in conjunction with IRAs
and Roth IRAs.
. Traditional Individual Retirement Annuities (IRAs) permit individuals to
make annual contributions of up to the lesser of a specified dollar amount
for the year or the amount of compensation includible in the individual's
gross income for the year. Certain employers may establish Simplified
Employee Pensions (SEPs), which have higher contribution limits, on behalf
of their employees. The Internal Revenue Service has not reviewed the
contract for qualification as an IRA, and has not addressed in a ruling of
general applicability whether death benefits such as those in the contract
comport with IRA qualification requirements.
. Roth IRAs permit certain eligible individuals to make non-deductible
contributions to a Roth IRA. Distributions from a Roth IRA generally are
not taxed, except that, once aggregate distributions exceed contributions
to the Roth IRA, income tax and a 10% IRS penalty tax may apply to
distributions made: (1) before age 591/2 (subject to certain exceptions);
or (2) during the five taxable years starting with the year in which the
first contribution is made to any Roth IRA. A 10% penalty may apply to
amounts attributable to a conversion from an IRA if they are distributed
during the five taxable years beginning with the year in which the
conversion was made.
. Traditional individual retirement accounts and Roth individual retirement
accounts have the same contribution limits and tax treatment of
distributions as the corresponding type of individual retirement annuity,
discussed above. The contract may be owned by the custodian or trustee of
an individual retirement account established for the benefit of the
Annuitant. Only the owner, acting through its authorized
representative(s), may exercise contract rights. When held by an
individual retirement account, the contract is not issued as an individual
retirement annuity or administered as such by us. Annuitants must look to
the custodian or trustee, as contract owner, for satisfaction of their
rights to benefits under the terms of the individual retirement account.
. Corporate pension and profit-sharing plans under Section 401(a) of the
Code allow corporate employers to establish various types of retirement
plans for employees, and self-employed individuals to establish qualified
plans ("H.R. 10 or Keough plans") for themselves and their employees.
. 403(b) Plans allow employees of certain tax-exempt organizations and
public schools to exclude from their
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gross income the purchase payments made, within certain limits, to a
contract that will provide an annuity for the employee's retirement.
Distributions of: (1) salary reduction contributions made in years
beginning after December 31, 1988; (2) earnings on those contributions;
and (3) earnings on amounts held as of the last year beginning before
January 1, 1989, are not allowed prior to age 591/2, severance from
employment, death or disability. Salary reduction contributions (but not
earnings) may also be distributed upon hardship, but would generally be
subject to a 10% IRS penalty tax. For contracts issued after 2008, amounts
attributable to nonelective contributions may be subject to distribution
restrictions specified in the employer's 403(b) Plan. Under recent IRS
regulations we are obligated to share information concerning certain
contract transactions with the employer sponsoring the 403(b) plan in
which the owner is participating and possibly other product providers. We
are generally are required to confirm, with your 403(b) plan sponsor or
otherwise, that these transactions comply with applicable tax requirements
and to decline requests that are not in compliance.
TERMS OF QUALIFIED RETIREMENT PLANS AND QUALIFIED CONTRACTS. The terms of a
qualified retirement plan may affect your rights under a Qualified Contract.
When issued in connection with a qualified plan, we will amend a contract as
generally necessary to conform to the requirements of that type of plan.
However, the rights of any person to any benefits under qualified plans may be
subject to the terms and conditions of the plans themselves, regardless of the
terms and conditions of the contract. In addition, we are not bound by the
terms and conditions of qualified retirement plans to the extent such terms and
conditions contradict the contract, unless we consent.
EMPLOYER QUALIFIED PLANS. Qualified plans sponsored by an employer or employee
organization are governed by the provisions of the Code and the Employee
Retirement Income Security Act, as amended ("ERISA"). ERISA is administered
primarily by the U.S. Department of Labor. The Code and ERISA include
requirements that various features be contained in an employer qualified plan
with respect to: participation; vesting; funding; nondiscrimination; limits on
contributions and benefits; distributions; penalties; duties of fiduciaries;
prohibited transactions; withholding; reporting and disclosure.
In the case of certain qualified plans, if a participant is married at the time
benefits become payable, unless the participant elects otherwise with written
consent of the spouse, the benefits must be paid in the form of a qualified
joint and survivor annuity. A qualified joint and survivor annuity is an
annuity payable for the life of the participant with a survivor annuity for the
life of the spouse in an amount that is not less than one-half of the amount
payable to the participant during his or her lifetime. In addition, a married
participant's beneficiary must be the spouse, unless the spouse consents in
writing to the designation of a different beneficiary.
There are specific Code and ERISA rules that apply to loans from qualified
plans. Employer plans may have additional restrictions. Partial withdrawals and
repayments of partial withdrawals permitted under this contract may not qualify
as a qualified plan loan.
If this contract is purchased as an investment of a qualified retirement plan,
the Owner will be either an employee benefit trust or the plan sponsor. Plan
participants and beneficiaries will have no ownership rights in the contract.
Only the Owner, acting through its authorized representative(s) may exercise
contract rights. Participants and beneficiaries must look to the plan
fiduciaries for satisfaction of their rights to benefits under the terms of the
qualified plan.
Where a contract is purchased by an employer-qualified plan, we assume no
responsibility regarding whether the contract's terms and benefits are
consistent with the requirements of the Code and ERISA. It is the
responsibility of the employer, plan trustee, plan administrator and/or other
plan fiduciaries to satisfy the requirements of the Code and ERISA applicable
to the qualified plan. This prospectus does not provide detailed tax or ERISA
information. Various tax disadvantages, including penalties, may result from
actions that conflict with requirements of the Code or ERISA, and the
regulations pertaining to those laws. Federal tax laws and ERISA are
continually under review by Congress. Any changes in the laws or in the
regulations pertaining to the laws may affect the tax treatment of amounts
contributed to employer qualified plans and the fiduciary actions required by
ERISA.
IRAS AND ROTH IRAS. The Code permits individuals to make annual contributions
to IRAs of up to the lesser of a specified dollar amount for the year or the
amount of compensation includible in the individual's gross income for the
year. The contributions may be deductible in whole or in part, depending on the
individual's income. The Code also permits certain eligible individuals to make
non-deductible contributions to a Roth IRA in cash or as a rollover or transfer
from another Roth IRA or other IRA. A rollover from or conversion of an IRA to
a Roth IRA is generally subject to tax. A special rule permits taxation of Roth
IRA conversions made during the 2010 tax year to be split between 2011 and
2012. You should consult a tax adviser before combining any converted amounts
with any other Roth IRA contributions, including any other conversion amounts
from other tax years.
THE INTERNAL REVENUE SERVICE HAS NOT REVIEWED THE CONTRACT FOR QUALIFICATION AS
AN IRA, AND HAS NOT ADDRESSED IN A
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RULING OF GENERAL APPLICABILITY WHETHER A DEATH BENEFIT PROVISION SUCH AS THE
PROVISION IN THIS CONTRACT COMPORTS WITH IRA QUALIFICATION REQUIREMENTS. WE
MAY, HOWEVER, ENDORSE THE CONTRACT TO SATISFY THE IRA OR ROTH IRA QUALIFICATION
RULES AND SUBMIT THE ENDORSED CONTRACT TO THE IRS FOR APPROVAL AS TO FORM. IF
YOU PURCHASED THE CONTRACT WITH SUCH AN ENDORSEMENT, THE ACCOMPANYING
DISCLOSURE STATEMENT WILL INDICATE THE STATUS OF THE CONTRACT'S APPROVAL UNDER
THE IRS IRA PROTOTYPE PROGRAM.
You will be the owner of a contract issued as an IRA or Roth IRA, and will be
responsible for exercising your rights as owner in accordance with applicable
tax rules, including limitations for contributions and distributions.
The contract may also be held in an IRA custodial account or trust as an
investment. In that event the custodian or trustee, with your cooperation, is
responsible for satisfaction of the IRA qualification requirements. We have no
responsibility beyond that pertaining to nonqualified contracts for contracts
held in an IRA account or trust.
THE DEATH BENEFIT AND QUALIFIED CONTRACTS. Pursuant to IRS regulations, IRAs
and 403(b) plans may not invest in life insurance contracts. We do not believe
that these regulations prohibit the death benefit, including that provided by
any death benefit rider option, from being provided under the contracts when we
issue the contracts as Traditional IRAs, Roth IRAs, SEPs or 403(b) plans.
However, the law is unclear and it is possible that the presence of the death
benefit under a contract issued as a Traditional IRA, Roth IRA, SEP or 403(b)
plan could disqualify a contract and result in increased taxes to the owner.
It is also possible that the death benefit could be characterized as an
incidental death benefit. If the death benefit were so characterized, this
could result in currently taxable income to purchasers. In addition, there are
limitations on the amount of incidental death benefits that may be provided
under qualified plans, such as in connection with a Section 403(b) plan. Even
if the death benefit under the contract were characterized as an incidental
death benefit, it is unlikely to violate those limits unless the purchaser also
purchases a life insurance contract in connection with such plan.
GUARANTEED MINIMUM INCOME PAYMENTS. Distributions from Qualified Contracts
generally must satisfy certain required "minimum distribution rules." It is
unclear whether variable Income Payments subject to the contract's Guaranteed
Minimum Income Payments feature will satisfy these rules. As a result, the
availability of such payments could cause the disqualification of a Qualified
Contract, which could result in increased taxes to the Owner. We reserve the
right to limit the availability of such payments, or to modify such payments,
as necessary to preclude any such disqualification. In addition, the Guaranteed
Minimum Income Payments feature, as well as the optional riders, could increase
the amount of the minimum required distribution that must be taken from your
contract.
TREATMENT OF QUALIFIED CONTRACTS COMPARED WITH NON-QUALIFIED
CONTRACTS. Although some of the Federal income tax rules are the same for both
Qualified and Non-Qualified Contracts, many of the rules are different. For
example:
. the Code generally does not impose tax on the earnings under either
Qualified or Non-Qualified Contracts until the earnings are distributed;
. the Code does not limit the amount of Purchase Payments and the time at
which Purchase Payments can be made under Non-Qualified Contracts.
However, the Code does limit both the amount and frequency of Purchase
Payments made to Qualified Contracts;
. the Code does not allow a deduction for Purchase Payments made for
Non-Qualified Contracts, but sometimes allows a deduction or exclusion
from income for Purchase Payments made to a Qualified Contract.
The Federal income tax rules applicable to qualified plans and Qualified
Contracts vary with the type of plan and contract. For example, Federal tax
rules limit the amount of Purchase Payments that can be made, and the tax
deduction or exclusion that may be allowed for the Purchase Payments. These
limits vary depending on the type of qualified plan and the circumstances of
the plan participant, e.g., the participant's compensation.
Under most qualified retirement plans, the participant must begin receiving
payments from the contract in certain minimum amounts by a certain date,
generally April 1 of the calendar year following the calendar year in which the
Owner attains age 70 1/2 for Traditional IRAs and SEPs and for other Qualified
Contracts, April 1 of the calendar year following the later of the calendar
year in which the Owner attains age 70 1/2 or the calendar year in which the
employee (except for a 5 percent owner) retires. Roth IRAs do not require any
distributions during the Owner's lifetime. The death benefit under your
contract may increase the amount of the minimum required distribution that must
be taken from your contract.
When distributions are to be made for married participants under certain
Qualified Contracts, the form of distribution may have to be a qualified joint
and survivor annuity. The form of distribution can be altered only with receipt
of consent of the spouse and the Annuitant.
AMOUNTS RECEIVED UNDER QUALIFIED CONTRACTS. Federal income tax rules generally
include distributions from a Qualified
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Contract in your income as ordinary income. Purchase Payments that are
deductible or excludible from income do not create "investment in the
contract." Thus, under many Qualified Contracts there will be no "investment in
the contract" and you must include the total amount you receive in your income.
There are exceptions. For example, you do not include amounts received from a
Roth IRA if certain conditions are satisfied. Additional Federal taxes may be
payable in connection with a Qualified Contract. For example, failure to comply
with the minimum distribution rules applicable to certain qualified plans, such
as an employer-sponsored retirement plan, will result in the imposition of an
excise tax. This excise tax generally equals 50% of the amount by which a
minimum required distribution exceeds the actual distribution from the
qualified plan. Pursuant to special legislation, required minimum distributions
for the 2009 tax year generally were not required, and 2009 distributions that
otherwise would have been required may be eligible for rollover. Required
minimum distributions must be taken under the usual tax rules for the 2010 and
subsequent tax years.
FEDERAL PENALTY TAXES PAYABLE ON DISTRIBUTIONS. The Code may impose a penalty
tax equal to 10% of the amount of any payment from your Qualified Contract that
is includible in your income. The Code does not impose the penalty tax if one
of several exceptions apply. The exceptions vary depending on the type of
Qualified Contract you purchase. For example, in the case of an IRA, exceptions
provide that the penalty tax does not apply to a partial withdrawal, surrender,
or Income Payment:
. received on or after the Owner reaches age 59 1/2;
. received on or after the Owner's death or because of the Owner's
disability (as defined in the tax law);
. received as a series of substantially equal periodic payments for the life
(or life expectancy) of the taxpayer; or
. to the extent it does not exceed the amount allowable as a deduction to
the Owner, amounts paid for medical care.
These exceptions, as well as certain others not described here, generally apply
to taxable distributions from other qualified retirement plans. However, the
specific requirements of the exception may vary.
MOVING MONEY FROM ONE QUALIFIED CONTRACT OR QUALIFIED PLAN TO
ANOTHER. ROLLOVERS AND TRANSFERS: In many circumstances you may move money
between Qualified Contracts and qualified plans by means of a rollover or a
transfer. Recent legislation has expanded these rollover options, including
permitting a direct rollover of your after-tax contributions in certain
circumstances. Special rules apply to such rollovers and transfers. If you do
not follow the applicable rules, you may suffer adverse Federal income tax
consequences, including paying taxes which you might not otherwise have had to
pay. You should always consult a qualified advisor before you move or attempt
to move funds between any Qualified Contract or plan and another Qualified
Contract or plan.
DIRECT ROLLOVERS. The direct rollover rules apply to certain payments (called
"eligible rollover distributions") from section 401(a) plans, section 403(b)
plans, H.R. 10 plans, and Qualified Contracts used in connection with these
types of plans. The direct rollover rules do not apply to distributions from
IRAs. The direct rollover rules require Federal income tax equal to 20% of the
eligible rollover distribution to be withheld from the amount of the
distribution, unless the Owner elects to have the amount directly transferred
to certain Qualified Contracts or plans. Certain restrictions apply to the
ability to rollover any after-tax amounts.
Prior to receiving an eligible rollover distribution from us, we will provide
you with a notice explaining these requirements and the procedure for avoiding
20% withholding by electing a direct rollover.
FEDERAL INCOME TAX WITHHOLDING
We will withhold and remit to the IRS a part of the taxable portion of each
distribution made under a contract unless the distributee notifies us at or
before the time of the distribution that he or she elects not to have any
amounts withheld. In certain circumstances, Federal income tax rules may
require us to withhold tax. At the time you request a partial withdrawal,
surrender, or Income Payment, we will send you forms that explain the
withholding requirements.
STATE INCOME TAX WITHHOLDING
If required by the law of your state, we will also withhold state income tax
from the taxable portion of each distribution made under the contract, unless
you make an available election to avoid withholding. If permitted under state
law, we will honor your request for voluntary state withholding.
TAX STATUS OF THE COMPANY
Under existing Federal income tax laws, we do not pay tax on investment income
and realized capital gains of the Variable Account. We do not anticipate that
we will incur any Federal income tax liability on the income and gains earned
by the Variable Account. We, therefore, do not impose a charge for Federal
income taxes. If Federal income tax law changes and we must pay tax on some or
all of the income and gains earned by the Variable Account, we may impose a
charge against the Variable Account to pay the taxes.
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FEDERAL ESTATE TAXES
While no attempt is being made to discuss the federal estate tax implications
of the contract, a purchaser should keep in mind that the value of an annuity
contract owned by a decedent and payable to a beneficiary by virtue of
surviving the decedent is included in the decedent's gross estate. Depending on
the terms of the annuity contract, the value of the annuity included in the
gross estate may be the value of the lump sum payment payable to the designated
beneficiary or the actuarial value of the payments to be received by the
beneficiary. Consult an estate planning adviser for more information.
GENERATION-SKIPPING TRANSFER TAX
Under certain circumstances, the Code may impose a "generation skipping
transfer tax" when all or part of an annuity contract is transferred to, or a
death benefit is paid to, an individual two or more generations younger than
the owner. Regulations issued under the Code may require us to deduct the tax
from your contract, or from any applicable payment, and pay it directly to the
IRS.
ESTATE, GIFT AND GENERATION-SKIPPING TRANSFER TAXES IN 2010. In 2001, Congress
enacted the Economic Growth and Tax Relief Reconciliation Act of 2001
("EGTRRA"), which eliminated the estate tax (but not the gift tax) and replaced
it with a carryover basis income tax regime for estates of decedents dying in
2010, and also eliminated the generation-skipping transfer tax for transfers
made in 2010. Beginning in 2011, however, EGTRRA allowed the estate, gift and
generation-skipping transfer taxes to return to their pre-EGTRRA form.
Moreover, it is possible that Congress may enact legislation reinstating the
estate and generation-skipping transfer taxes for 2010, possibly on a
retroactive basis. The uncertainty as to future estate, gift and
generation-skipping transfer taxes underscores the importance of seeking
guidance from a qualified adviser to help ensure that your estate plan
adequately addresses your needs and that of your beneficiaries under all
possible scenarios.
ANNUITY PURCHASES BY RESIDENTS OF PUERTO RICO
The IRS has announced that income received by residents of Puerto Rico under
life insurance or annuity contracts issued by a Puerto Rico branch of a United
States life insurance company is U.S.-source income that is generally subject
to United States federal income tax.
ANNUITY PURCHASES BY NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
The discussion above provides general information regarding U.S. federal income
tax consequences to annuity purchasers that are U.S. citizens or residents.
Purchasers that are not U.S. citizens or residents will generally be subject to
U.S. federal withholding tax on taxable distributions from annuity contracts at
a 30% rate, unless a lower treaty rate applies. In addition, purchasers may be
subject to state and/or municipal taxes and taxes that may be imposed by the
purchaser's country of citizenship or residence. Prospective purchasers are
advised to consult with a qualified tax adviser regarding U.S. state, and
foreign taxation with respect to an annuity contract purchase.
FOREIGN TAX CREDITS
We may benefit from any foreign tax credits attributable to taxes paid by
certain funds to foreign jurisdictions to the extent permitted under federal
tax law.
CHANGES IN THE LAW
This discussion is based on the Code, IRS regulations, and interpretations
existing on the date of this prospectus. Congress, the IRS, and the courts may
modify these authorities, however, sometimes retroactively.
REQUESTING PAYMENTS
To request a payment, you must provide us with notice in a form satisfactory to
us. We will ordinarily pay any partial withdrawal or surrender proceeds from
the Subaccount within 7 days after receipt at our Home Office of a request in
good order for a partial withdrawal or surrender. We also will ordinarily make
payment of lump sum Death Benefit proceeds from the Subaccount within 7 days
from the receipt of due proof of death and all required forms. We will
determine the payment amount as of the end of the Valuation Day during which
our Home Office receives the payment request or due proof of death and all
required forms.
In most cases, when we pay Death Benefit proceeds in a lump sum, we will pay
these proceeds either:
(1) to your Designated Beneficiary directly in the form of a check; or
(2) by establishing an interest bearing draft account for the Designated
Beneficiary called the "Secure Access Account" in the amount of the
Death Benefit.
When establishing the Secure Access Account we will send the beneficiary a
draft account book within 7 days after we receive all the required documents,
and the beneficiary will have immediate access to the account simply by writing
a draft for all or any part of the amount of the Death Benefit payable. Any
interest credited to amounts in the Secure Access Account is currently taxable
to the designated beneficiary.
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The Secure Access Account is part of our General Account. It is not a bank
account and it is not insured by the FDIC or any other government agency. As
part of our General Account, it is subject to the claims of our creditors. We
receive a benefit from all amounts left in the Secure Access Account.
If we do not receive instructions from the Designated Beneficiary with regard
to the form of Death Benefit payment, we will automatically establish the
Secure Access Account for proceeds of $10,000 or more, unless state law
requires a positive election. The Secure Access Account is not available in all
states.
We will delay making a payment from the Subaccount or applying Subaccount Value
to a payment plan if:
(1) the disposal or valuation of the Subaccount is not reasonably
practicable because:
. the SEC declares that an emergency exists (due to the emergency the
disposal or valuation of the Variable Account's assets is not
reasonably practicable);
. the New York Stock Exchange is closed for other than a regular holiday
or weekend;
. trading is restricted by the SEC; or
(2) the SEC, by order, permits postponement of payment to protect our Owners.
We reserve the right to defer payments from the Guarantee Account and the
Immediate Installment Account for a partial withdrawal or surrender for up to 6
months from the date we receive your payment request. We also may defer making
any payments attributable to a check or draft that has not cleared until we are
satisfied that the check or draft has been paid by the bank on which it is
drawn.
If mandated under applicable law, we may be required to reject a Purchase
Payment and/or block an Owner's account and thereby refuse any transfers into
the Total Return Fund, request for surrenders, partial withdrawals, or death
benefits, until instructions are received from the appropriate regulators. We
may also be required to provide additional information about you or your
account to government regulators.
SALES OF THE CONTRACTS
We have entered into an underwriting agreement with Capital Brokerage
Corporation (doing business in Indiana as Genworth Financial Brokerage
Corporation) (collectively, "Capital Brokerage Corporation") for the
distribution and sale of the contracts. Pursuant to this agreement, Capital
Brokerage Corporation serves as principal underwriter for the contracts,
offering them on a continuous basis. Capital Brokerage Corporation is located
at 6620 West Broad Street, Building 2, Richmond, Virginia 23230. Capital
Brokerage Corporation is not required to sell any specific number or dollar
amount of contracts, but will use its best efforts to sell the contracts.
Capital Brokerage Corporation was organized as a corporation under the laws of
the state of Washington in 1981 and is an affiliate of ours. Capital Brokerage
Corporation is registered as a broker-dealer with the SEC under the Securities
Exchange Act of 1934, as well as with the securities commissions in the states
in which it operates, and is a member of the Financial Industry Regulatory
Authority ("FINRA"), (formerly, the NASD, Inc.)
Capital Brokerage Corporation offers the contracts through registered
representatives who are registered with FINRA and with the states in which they
do business. More information about Capital Brokerage Corporation and the
registered representatives is available at http://www.finra.org or by calling
800.289.9999. You can also obtain an investor brochure from FINRA describing
its Public Disclosure Program. Registered representatives with Capital
Brokerage Corporation are also licensed as insurance agents in the states in
which they do business and are appointed with us.
Capital Brokerage Corporation also enters into selling agreements with an
affiliated broker-dealer and unaffiliated broker-dealers to sell the contracts.
The registered representatives of these selling firms are registered with FINRA
and with the states in which they do business, are licensed as insurance agents
in the states in which they do business and are appointed with us.
We pay compensation to Capital Brokerage Corporation for promotion and sales of
the contracts by its registered representatives as well as by affiliated and
unaffiliated selling firms. This compensation consists of sales commissions and
other cash and non-cash compensation. The maximum commission we may pay is 12%
of Purchase Payments received.
The maximum commission consists of three parts -- commissions paid to internal
and external wholesalers of Capital Brokerage Corporation ("wholesalers" are
individuals employed by the Company and registered with Capital Brokerage
Corporation that promote the offer and sale of the contracts), commissions paid
to the affiliated and unaffiliated brokerage firm for whom the registered
representative that sold your contract is employed ("selling firms") and an
amount paid to the selling firm for marketing allowances and other payments
related to the sale of the contract. Wholesalers with Capital Brokerage
Corporation receive a maximum commission of 1.4% of Purchase Payments.
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After commission is paid to the wholesalers of Capital Brokerage Corporation, a
commission is then paid to the selling firm. A maximum commission of 9.6% of
Purchase Payments. The exact amount of commission paid to the registered
representative who sold you your contract is determined by the brokerage firm
for whom the representative is employed.
All selling firms receive commissions as described above based on the sale and
receipt of Purchase Payments in the contract. Unaffiliated selling firms
receive additional compensation, including marketing allowances and other
payments. The maximum marketing allowance paid on the sale of a contract is
1.0% of Purchase Payments received. At times, Capital Brokerage Corporation may
make other cash and non-cash payments to selling firms, as well as receive
payments from selling firms, for expenses relating to the recruitment and
training of personnel, periodic sales meetings, the production of promotional
sales literature and similar expenses. These expenses may also relate to the
synchronization of technology between the Company, Capital Brokerage
Corporation and the selling firm in order to coordinate data for the sale and
maintenance of the contract. In addition, registered representatives may be
eligible for non-cash compensation programs offered by Capital Brokerage
Corporation or an affiliated company, such as conferences, trips, prizes and
awards. The amount of other cash and non-cash compensation paid by Capital
Brokerage Corporation or its affiliated companies ranges significantly among
the selling firms. Likewise, the amount received by Capital Brokerage
Corporation from the selling firms ranges significantly.
The commissions listed above are maximum commissions paid, and reflect
situations where we pay a higher commission for a short period of time for a
special promotion.
Commissions paid on the contracts, including other incentives and payments, are
not charged directly to you or to your Contract Value, but indirectly through
fees and charges imposed under the contracts.
All commissions, special marketing allowances and other payments made or
received by Capital Brokerage Corporation to or from selling firms come from or
are allocated to the general assets of Capital Brokerage Corporation or one of
its affiliated companies. Therefore, regardless of the amount paid or received
by Capital Brokerage Corporation or one of its affiliated companies, the amount
of expenses you pay under the contract does not vary because of such payments
to or from such selling firms. Some contracts, such as this contract, have
rider options that have charges that vary based on certain underwriting
criteria. Such factors include, but are not limited to: age, gender, and the
coverage requested.
Even though your contract costs are not determined based on amounts paid to or
received from Capital Brokerage Corporation or the selling firm, the prospect
of receiving, or the receipt of, additional cash or non-cash compensation as
described above may create an incentive for selling firms and/or their
registered representative to sell you this product versus a product with
respect to which a selling firm does not receive additional compensation, or a
lower level of additional compensation. You may wish to take such compensation
arrangements, which may be referred to as "revenue sharing arrangements," into
account when considering and evaluating any recommendation relating to the
contracts.
During 2009, 2008 and 2007, $64.1 million, $91.1 million and $140.1 million was
paid to Capital Brokerage Corporation for the sales of contracts in the
Variable Account and any new purchase payments received. In 2009, 2008 and
2007, no underwriting commissions were paid to Capital Brokerage Corporation.
We discontinued offering the contracts for new sales effective December 31,
2008.
LEGAL PROCEEDINGS
We face a significant risk of litigation and regulatory investigations and
actions in the ordinary course of operating our businesses, including the risk
of class action lawsuits. Our pending legal and regulatory actions include
proceedings specific to us and others generally applicable to business
practices in the industries in which we operate. In our insurance operations,
we are, have been, or may become subject to class actions and individual suits
alleging, among other things, issues relating to sales or underwriting
practices, payment of contingent or other sales commissions, claims payments
and procedures, product design, product disclosure, administration, additional
premium charges for premiums paid on a periodic basis, denial or delay of
benefits, charging excessive or impermissible fees on products, recommending
unsuitable products to customers and breaching fiduciary or other duties to
customers. Plaintiffs in class action and other lawsuits against us may seek
very large or indeterminate amounts, including punitive and treble damages,
which may remain unknown for substantial periods of time. In our
investment-related operations, we are subject to litigation involving
commercial disputes with counterparties. We are also subject to litigation
arising out of our general business activities such as our contractual and
employment relationships. We are also subject to various regulatory inquiries,
such as information requests, subpoenas, books and record examinations and
market conduct and financial examinations from state and federal regulators and
other authorities. A substantial legal liability or a significant regulatory
action against us could have an adverse effect on our business, financial
condition and results of operations.
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Moreover, even if we ultimately prevail in the litigation, regulatory action or
investigation, we could suffer significant reputational harm, which could have
an adverse effect on our business, financial condition and results of
operations.
We cannot ensure that the current investigations and proceedings will not have
a material adverse effect on our business, financial condition or results of
operations. In addition, it is possible that related investigations and
proceedings may be commenced in the future, and we could become subject to
further investigations and have lawsuits filed against us. In addition,
increased regulatory scrutiny and any resulting investigations or proceedings
could result in new legal precedents and industry-wide regulations or practices
that could adversely affect our business, financial condition and results of
operations.
The Company shall, and may through insurance coverage, indemnify any directors
or officers who are a party to any proceeding by reason of the fact that he or
she was or is a director or officer of the Company against any liability
incurred by him or her in connection with such proceeding unless he or she
engaged in willful misconduct or a knowing violation of the criminal law or any
federal or state securities law. Such indemnification covers all judgments,
settlements, penalties, fines and reasonable expenses incurred with respect to
such proceeding. If the person involved is not a director or officer of the
Company, the board of directors may cause the Company to indemnify, or contract
to indemnify, to the same extent allowed for its directors and officers, such
person who was, is or may become a party to any proceeding, by reason of the
fact that he or she is or was an employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise.
Insofar as indemnification for liability arising under the 1933 Act may be
permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, we have been advised that
in the opinion of the SEC such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the depositor in successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the 1933 Act and will be
governed by the final adjudication of such issue.
Capital Brokerage Corporation is not in any pending or threatened lawsuits that
are reasonably likely to have a material adverse impact on us or on the
Variable Account.
Although it is not anticipated that these developments will have an adverse
impact on us, the Variable Account, or on the ability of Capital Brokerage
Corporation to perform under its principal underwriting agreement, there can be
no assurance at this time.
ADDITIONAL INFORMATION
OWNER QUESTIONS
The obligations to Owners under the contracts are ours. Please direct your
questions and concerns to us at our Home Office.
RETURN PRIVILEGE
Within the free-look period after you receive the contract, you may cancel it
for any reason by delivering or mailing it postage prepaid to:
Genworth Life and Annuity Insurance Company
Annuity New Business
6610 West Broad Street
Richmond, Virginia 23230
If you cancel your contract, it will be void. Unless state law requires that we
return your Purchase Payments, the amount of the refund you receive will equal
your Contract Value and any rider Purchase Payments received PLUS any
adjustments required by applicable law or regulation on the date we receive the
contract PLUS or MINUS any applicable Market Value Adjustment, but without
reduction for any surrender charge or access charge. If state law requires that
we return your Purchase Payments, the amount of the refund will equal the
Purchase Payments made less any partial withdrawals you previously made. In
certain states, you may have more than 10 days to return the contract for a
refund.
STATE REGULATION
As a life insurance company organized and operated under the laws of the
Commonwealth of Virginia, we are subject to provisions governing life insurers
and to regulation by the Virginia Commissioner of Insurance.
Our books and accounts are subject to review and examination by the State
Corporation Commission of the Commonwealth of Virginia at all times. That
Commission conducts a full examination of our operations at least every five
years.
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EVIDENCE OF DEATH, AGE, GENDER OR SURVIVAL
We may require proof of the age, gender, death or survival of any person or
persons before acting on any applicable contract provision.
RECORDS AND REPORTS
As presently required by the 1940 Act and applicable regulations, we are
responsible for maintaining all records and accounts relating to the Variable
Account. At least once each year, we will send you a report showing information
about your contract for the period covered by the report. The report will show
the total Contract Value, including your value in the Subaccount, the Immediate
Installment Account and the Guarantee Account. The report also will show
Purchase Payments and charges made during the statement period. We also will
send you an annual and a semi-annual report for the Total Return Fund, as
required by the 1940 Act. In addition, you will receive a written confirmation
when you make Purchase Payments, transfers from either the Immediate
Installment Account or Guarantee Account to the Subaccount, or take partial
withdrawals.
LEGAL MATTERS
Certain matters regarding the offering of the securities herein will be passed
upon by Michael D. Pappas, internal counsel for the Company (as to Virginia law
and United States federal securities law matters).
Opinions may be issued in the future by counsel other than those listed above.
The name of such counsel, other than those listed above will be included in a
prospectus supplement.
EXEMPTION TO FILE PERIODIC REPORTS
The Company does not intend to file periodic reports required under the
Securities Exchange Act of 1934 in reliance on the exemption provided by Rule
12h-7 thereunder.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus, which constitutes part of the registration statement, does not
contain all the information set forth in the registration statement. Parts of
the registration statement are omitted from this prospectus in accordance with
the rules and regulations of the SEC.
The registration statement, including exhibits, contains additional relevant
information about us. You can read and copy information we file at the SEC
public reference room at 100 F Street, N.E., Washington, D.C. 20549. You can
also request copies of our documents upon payment of a duplicating fee, by
writing the SEC's public reference room. You can obtain information regarding
the public reference room by calling the SEC at 1-800-SEC-0330. Our filings are
available to the public from commercial document retrieval services and over
the internet at http://www.sec.gov. (This uniform resource locator (URL) is an
inactive textual reference only and is not intended to incorporate the SEC web
site into this prospectus.)
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APPENDIX
ANNUITY CROSS FUNDING PROGRAM
THE ANNUITY CROSS FUNDING PROGRAM IS NOT AVAILABLE FOR CONTRACTS ISSUED ON OR
AFTER AUGUST 17, 2004.
WHAT IS THE ANNUITY CROSS FUNDING PROGRAM? This section of the prospectus
describes the Annuity Cross Funding Program; a program which allowed the
purchase of a flexible purchase payment variable deferred annuity contract
issued by the Company and use it to make payments to this annuity contract. We
refer to the program as the "Annuity Cross Funding Program" because you take
Systematic Withdrawals from the flexible purchase payment variable deferred
annuity (referred to as the "Funding Annuity") to make payments to this
contract.
Under the contract offered by this prospectus, the maximum amount that can be
allocated to the Subaccount is the Scheduled Installment due on each Monthly
Due Date. The Annuity Cross Funding Program is designed to provide you with
additional variable investment options in which to allocate assets.
HOW DOES THE ANNUITY CROSS FUNDING PROGRAM WORK? The Funding Annuity used in
the Annuity Cross Funding Program must be issued on the same date this contract
is issued. In addition, the Annuity Commencement Date for the Funding Annuity
and the Annuity Commencement Date for this contract must be the same date and
not later than the date shown on the contract data page when the contract is
issued. You may not change the Annuity Commencement Date on this contract once
the contract is issued. However, the terms of the Funding Annuity may allow you
to change the Annuity Commencement Date, but, if you change the Annuity
Commencement Date on the Funding Annuity after the date the contract is issued,
you will lose your right to Guaranteed Minimum Income Payments on this contract
because the Annuity Commencement Dates are no longer the same.
Currently the Annuity Cross Funding Program permits you to allocate contract
value you have in the Funding Annuity to this contract as follows:
. to the Subaccount in an amount not more than the Scheduled Installment
amount; (you may request that monthly Scheduled Installments be made by a
series of automatic monthly transfers); or
. to the Immediate Installment Account in an amount greater than 6 Scheduled
Purchase Payments.
You may not allocate Contract Value from the Funding Annuity to the Guarantee
Account of this contract without our prior approval. You may not purchase the
optional riders under this contract if you elect to participate in the Annuity
Cross Funding Program.
There is no charge for participating in the Annuity Cross Funding Program. The
Annuity Cross Funding Program will terminate automatically when the Systematic
Withdrawals from the Funding Annuity cause the Contract Value in the Funding
Annuity to be less than $100. You may discontinue the Annuity Cross Funding
Program at any time by notifying us in writing at our Home Office.
Discontinuing the Annuity Cross Funding Program could cause you to lose your
guarantee under this contract if Scheduled Purchase Payments are not completed
under the terms of this annuity contract. Once you discontinue participation in
the Annuity Cross Funding Program, you may not reinstate it.
The actual performance of a Funding Annuity may directly affect the amount of
purchase payments that must be allocated to a Funding Annuity in order to make
all required Scheduled Installments for this annuity contract. If the
Subaccounts of the Funding Annuity in which assets are allocated do not perform
as anticipated, it may be necessary to make additional purchase payments to
either the Funding Annuity or this annuity so that the right to Guaranteed
Minimum Income Payments upon annuitization is not lost.
FUNDING ANNUITIES ARE OFFERED BY SEPARATE PROSPECTUSES. Only variable annuity
contracts issued by us or one of our affiliated companies and offered for use
in an Annuity Cross Funding Program could be purchased as a Funding Annuity.
The Funding Annuity is not offered by this prospectus. The Funding Annuity is
no longer offered and the Annuity Cross Funding Program is not available for
Contracts issued on or after August 17, 2004.
FUNDING ANNUITIES ARE VARIABLE ANNUITY CONTRACTS THAT MAY INVOLVE INVESTMENT
RISK. As with other variable annuity contracts, amounts allocated to variable
investment options under the Funding Annuity involve investment risk and you
may lose some or all of such amounts, including amounts you may intend to
transfer from the Funding Annuity to the Subaccount in the future to satisfy
Scheduled Installment requirements. FUNDING ANNUITIES MAY NOT OFFER GUARANTEED
INVESTMENT OPTIONS, AND THE ABILITY TO TRANSFER CONTRACT VALUE FROM THE FUNDING
ANNUITY TO THE GUARANTEE ACCOUNT OR IMMEDIATE INSTALLMENT ACCOUNT UNDER THIS
CONTRACT MAY BE SUBJECT TO RESTRICTIONS AND/OR LIMITATIONS.
ANNUITY CROSS FUNDING PROGRAM -- TAX TREATMENT OF THE ANNUITY CONTRACTS. Under
an Annuity Cross Funding Program we will treat transfers from the Funding
Annuity to this contract as non-taxable transfers within a single annuity
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contract for Federal tax purposes only if this contract and the Funding Annuity
each satisfy certain requirements upon issue. Our ability to continue to treat
transfers from the Funding Annuity to this contract as non-taxable transfers
within a single annuity contract for Federal tax purposes may be adversely
affected if certain changes are made to either contract after issue. CHANGING
THE ANNUITY COMMENCEMENT DATE FOR THE FUNDING ANNUITY ONCE AN ANNUITY CROSS
FUNDING PROGRAM HAS BEGUN MAY HAVE ADVERSE TAX CONSEQUENCES, AND YOU SHOULD
CONSULT A TAX ADVISER BEFORE MAKING ANY SUCH CHANGE. IN ADDITION, YOU SHOULD
CAREFULLY CONSIDER YOUR ABILITY TO MAKE ADDITIONAL PURCHASE PAYMENTS, IF
NECESSARY, WITH RESPECT TO THE FUNDING ANNUITY. CHANGING THE ANNUITY
COMMENCEMENT DATE ON THE FUNDING ANNUITY WILL ALSO CAUSE YOU TO LOSE YOUR RIGHT
TO GUARANTEED MINIMUM INCOME PAYMENTS UNDER THIS CONTRACT.
BOTH CONTRACTS MUST HAVE THE SAME OWNER, JOINT OWNER IF ANY, AND ANNUITANT (AS
WELL AS JOINT ANNUITANT, IF ANY). THE BENEFICIARIES NEED NOT BE THE SAME.
CHANGING AN OWNER, ANNUITANT, OR BENEFICIARY, IF PERMITTED BY THE CONTRACT, MAY
HAVE ADVERSE TAX CONSEQUENCES. YOU SHOULD CONSULT A TAX ADVISER BEFORE MAKING
SUCH A CHANGE.
This contract permits you for a limited period to return it for a refund as
described under the "Return Privilege" section of this prospectus. Funding
Annuities may also provide a return privilege. YOU MAY CHOOSE TO RETURN EITHER
THE FUNDING ANNUITY CONTRACT, THIS CONTRACT, OR BOTH CONTRACTS IN ACCORDANCE
WITH THE APPLICABLE RETURN PRIVILEGE.
RETURNING EITHER THIS CONTRACT OR THE FUNDING ANNUITY CONTRACT IN ACCORDANCE
WITH THE APPLICABLE RETURN PRIVILEGE WITHOUT ALSO RETURNING THE OTHER CONTRACT
MAY RESULT IN ADVERSE TAX CONSEQUENCES AND YOU SHOULD CONSULT A TAX ADVISER
BEFORE RETURNING ONLY ONE CONTRACT.
Transfers from this annuity to the Funding Annuity are not permitted. Transfers
may be permitted from the Funding Annuity to this contract. Amounts may be
transferred from the Funding Annuity to repay amounts withdrawn from the
Subaccount under this contract. Amounts transferred from the Funding Annuity to
this annuity are not subject to surrender charges under the Funding Annuity,
but amounts surrendered or partially withdrawn from the Funding Annuity may be
subject to surrender charges. In addition, while surrender charges applicable
to a Funding Annuity may decline over a certain period, amounts transferred
from the Funding Annuity to this annuity may be subject to surrender charges
and/or a Market Value Adjustment (which may be positive or negative) upon a
partial withdrawal or surrender from this annuity. The surrender charge
applicable to amounts transferred to this annuity may be higher than those
applicable to such amounts had they remained invested in the Funding Annuity;
Market Value Adjustments applicable to amounts transferred to the Immediate
Installment Account may not have been applicable to such amounts had they
remained invested in the Funding Annuity.
If you request a partial withdrawal or surrender while participating in an
Annuity Cross Funding Program, you must designate whether the partial
withdrawal or surrender is to be made from the Funding Annuity or this annuity.
Surrender charges and any other applicable charges will be assessed according
to the provisions of the contract from which the partial withdrawal or
surrender is made and as disclosed in the prospectus for that contract. YOU
SHOULD BE AWARE THAT THE TAX TREATMENT OF PARTIAL WITHDRAWALS OR SURRENDERS
FROM EITHER THIS CONTRACT OR THE FUNDING ANNUITY WILL BE AFFECTED BY PARTIAL
WITHDRAWALS OR SURRENDERS, AS WELL AS GAINS OR LOSSES WITH RESPECT TO THE OTHER
CONTRACT. YOU SHOULD CONSULT A TAX ADVISER BEFORE REQUESTING PARTIAL
WITHDRAWALS OR SURRENDERS FROM THIS CONTRACT OR THE FUNDING ANNUITY WHILE
PARTICIPATING IN AN ANNUITY CROSS FUNDING PROGRAM.
DEATH BENEFITS WILL BE CALCULATED AND PAID SEPARATELY IN ACCORDANCE WITH THE
PROVISIONS OF THIS CONTRACT OR THE FUNDING ANNUITY AS THE CASE MAY BE, AND AS
DISCLOSED IN THE PROSPECTUS FOR THE RESPECTIVE CONTRACT.
Income Payments will be calculated and paid in accordance with the provisions
of this contract and the Funding Annuity (including the respective annuity
tables of such contracts) and the provisions of the respective prospectuses for
and administrative procedures applicable to each such contract. However, this
contract and the Funding Annuity will be aggregated and treated as one contract
for purposes of the tax treatment of such Income Payments. YOU SHOULD CONSULT A
TAX ADVISER BEFORE REQUESTING INCOME PAYMENTS TO START UNDER THIS CONTRACT
AND/OR THE FUNDING ANNUITY AND BEFORE COMMUTING ANY SUCH INCOME PAYMENTS BEFORE
THE PAYMENT DATE FOR SUCH PAYMENT.
THIS DISCUSSION OF THE ANNUITY CROSS FUNDING PROGRAM DOES NOT ATTEMPT TO
ADDRESS THE TAX AND OTHER TREATMENT OF EVERY TRANSACTION THAT COULD BE EFFECTED
UNDER THIS CONTRACT OR A FUNDING ANNUITY IN CONNECTION WITH AN ANNUITY CROSS
FUNDING PROGRAM. YOU SHOULD CONSULT A TAX ADVISER BEFORE YOU PURCHASE THIS
CONTRACT AND/OR THE FUNDING ANNUITY IN CONNECTION WITH AN ANNUITY CROSS FUNDING
PROGRAM.
TAXATION OF CROSS FUNDED ANNUITY CONTRACTS. You may authorize partial
withdrawals from a Funding Annuity to be applied to satisfy the Scheduled
Installments into this annuity. In that event, based on a Private Letter Ruling
issued by the IRS on July 30, 2002 (PLR 200243047), we believe that the tax
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treatment set forth below will apply to Non-Qualified Contracts and we will
report relevant transactions to the IRS on the basis that:
(1) this annuity and the Funding Annuity will be aggregated and treated as a
single annuity contract for tax purposes;
(2) amounts transferred from the Funding Annuity to this annuity will not be
treated as a taxable distribution, but instead as a non-taxable transfer
of assets within a single deferred variable annuity contract;
(3) if amounts are distributed from either this annuity or the Funding
Annuity before the Annuity Commencement Date, such amounts will be taxed
to the extent there is any aggregate gain in this contract and the
Funding Annuity; and
(4) distributions from this annuity and the Funding Annuity beginning on the
Annuity Commencement Date will be aggregated and taxed on a pro rata
basis.
A portion of each aggregate distribution on or after the Annuity Commencement
Date (provided such date is a date at least 10 years from the date the
contracts were issued) will be treated as a non-taxable return of the aggregate
investment in this annuity and the Funding Annuity and the remaining portion of
such aggregate distribution will be treated as taxable, until all such
aggregate investment in this annuity and the Funding Annuity has been
recovered. After that, all distributions from this annuity and the Funding
Annuity will be fully taxable.
For Non-Qualified Contracts, if the Annuity Commencement Date of the Funding
Annuity is changed so that this annuity and the Funding Annuity have different
Annuity Commencement Dates, the resulting tax consequences will be uncertain
and possibly less favorable than those set forth above.
Except as otherwise required by law, transfers of assets between contracts with
different Annuity Commencement Dates and different withdrawals of assets from
such contracts will be treated as taxable withdrawals, with gain determined on
an aggregate basis in accordance with Code Section 72(e)(11).
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TABLE OF CONTENTS
STATEMENT OF ADDITIONAL INFORMATION

Genworth Life and Annuity Insurance Company
6610 West Broad Street
Richmond, Virginia 23230
A Statement of Additional Information containing more detailed information
about the contract and the Variable Account is available free by writing us at
the address below or by calling 800.352.9910.
Genworth Life and Annuity Insurance Company
Annuity New Business
6610 West Broad Street
Richmond, Virginia 23230
Please mail a copy of the Statement of Additional Information for the Variable
Account, Contract Form P1161 3/01, to:
Name ___________________________________________________________________________
Address ________________________________________________________________________
Street
________________________________________________________________________________
City State Zip
Signature of Requestor _________________________________________________________
Date
STATEMENT OF ADDITIONAL INFORMATION FOR
SCHEDULED PURCHASE PAYMENT VARIABLE DEFERRED ANNUITY CONTRACTS
FORM P1161 3/01
ISSUED BY:
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY
GENWORTH LIFE & ANNUITY VA SEPARATE ACCOUNT 1
6610 WEST BROAD STREET
RICHMOND, VIRGINIA 23230
TELEPHONE NUMBER: 800.352.9910
--------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the prospectus, dated April 30, 2010, for the Scheduled
Purchase Payment Variable Deferred Annuity Contracts issued by Genworth Life
and Annuity Insurance Company through its Genworth Life & Annuity VA Separate
Account 1. The terms used in the current prospectus for the Scheduled Purchase
Payment Variable Deferred Annuity Contracts are incorporated into this
Statement of Additional Information.
For a free copy of the prospectus:
Call: 800.352.9910
Or write: Genworth Life and Annuity Insurance Company
6610 West Broad Street
Richmond, Virginia 23230
Or visit: www.genworth.com
Or: contact your financial representative.
The date of this Statement of Additional Information is April 30, 2010.
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TABLE OF CONTENTS

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THE COMPANY
We are a stock life insurance company operating under a charter granted by the
Commonwealth of Virginia on March 21, 1871 as The Life Insurance Company of
Virginia. An affiliate of our former ultimate parent company acquired us on
April 1, 1996 and ultimately contributed the majority of the outstanding common
stock to Genworth Life Insurance Company ("GLIC").
On May 31, 2004, we became a direct, wholly-owned subsidiary of GLIC while
remaining an indirect, wholly-owned subsidiary of Genworth Financial, Inc.
("Genworth"). Until March 12, 2007, our preferred shares were owned by an
affiliate, Brookfield Life Assurance Company Limited. On March 12, 2007, we
redeemed the remaining outstanding preferred shares for par value of $110.0
million and paid $2.5 million in dividends on the redeemed preferred shares. On
April 30, 2007, the issued shares of preferred stock were retired.
Our principal offices are located at 6610 West Broad Street, Richmond, Virginia
23230.
On January 1, 2007, Federal Home Life Insurance Company ("FHL") and First
Colony Life Insurance Company ("FCL") merged with and into the Company. The
Company was the surviving entity. FHL and FCL were both stock life insurance
companies operating under charter granted by the Commonwealth of Virginia and
both were affiliates of the Company. We received regulatory approval from the
State Corporation Commission, Bureau of Insurance of the Commonwealth of
Virginia for these mergers. The accompanying financial information for the
Company has been presented as if the mergers had been effective for all periods
and were accounted for as a pooling of interests for entities under common
control, as the Company, FHL and FCL were all wholly-owned subsidiaries of
Genworth.
Upon consummation of the FHL and FCL mergers, the Company transferred its
ownership of American Mayflower Life Insurance Company of New York ("AML"),
formerly a wholly-owned subsidiary of FCL, to Genworth Life Insurance Company
of New York ("GLICNY"), an affiliate, in exchange for a non-majority ownership
interest in GLICNY. AML merged into GLICNY, with GLICNY being the surviving
entity.
We are one of a number of subsidiaries of Genworth, a leading financial
security company dedicated to providing insurance, wealth management,
investment management and financial solutions to more than 15 million
customers, with a presence in more than 25 countries. We have two operating
segments: (1) Protection and (2) Retirement Income, formerly known as
Retirement Income and Institutional.
. PROTECTION. We offer customers term and universal life insurance and
Medicare supplement insurance.
. RETIREMENT INCOME. We offer customers a variety of wealth accumulation
and income distribution products. Wealth accumulation and income
distribution products principally include fixed and variable deferred and
immediate individual annuities and group variable annuities offered
through retirement plans. We discontinued offering variable life on and
after May 1, 2008.
We also have Corporate and Other activities, which include unallocated
corporate income and expenses and the results of non-strategic products that
are managed outside of our operating segments. Our non-strategic products
include our institutional and corporate-owned life insurance products.
Institutional products consist of funding agreements, funding agreements
backing notes ("FABNs") and guaranteed investment contracts ("GICs").
We do business in all states, except New York, the District of Columbia and
Bermuda.
We are subject to regulation by the State Corporation Commission of the
Commonwealth of Virginia. We file an annual statement with the Virginia
Commissioner of Insurance on or before March 1 of each year covering our
operations and reporting on our financial condition as of December 31 of the
preceding year. Periodically, the Commissioner of Insurance examines our
liabilities and reserves and those of the Variable Account and assesses their
adequacy, and a full examination of our operations is conducted by the State
Corporation Commission, Bureau of Insurance of the Commonwealth of Virginia, at
least every five years.
We are also subject to the insurance laws and regulation of other states within
which we are licensed to operate.
THE VARIABLE ACCOUNT
In accordance with the Board Resolution establishing the Variable Account, such
Variable Account will be divided into one or more Subaccounts, each of which
shall invest in the shares of a designated mutual fund portfolio, managed
separate account and/or other portfolios (the " Eligible Portfolios"), and net
purchase payments under the contracts shall be allocated to the one or more
Subaccounts which will invest in the Eligible Portfolios set forth in the
contracts in accordance with the instructions received from contract owners.
THE CONTRACTS
Net Investment Factor
The net investment factor measures investment performance of the Subaccount
during a Valuation Period. The net investment factor of the Subaccount for a
Valuation Period is (a) divided by (b) MINUS (c) where:
(a) is the result of:
(1) the value of the assets of the Subaccount at the end of the preceding
Valuation Period; PLUS
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(2) the investment income and capital gains, realized or unrealized,
credited to those assets at the end of the Valuation Period for which
the net investment factor is being determined; MINUS
(3) the capital losses, realized or unrealized, charged against those
assets during the Valuation Period; MINUS
(4) any amount charged against the Subaccount for taxes; this includes
any amount we set aside during the Valuation Period as a provision
for taxes attributable to the operation or maintenance of the
Subaccount; and
(b) is the value of the net assets of the Subaccount at the end of the
preceding Valuation Period; and
(c) is a factor for the Valuation Period representing the mortality and
expense risk charge and the administrative expense charge. This factor
is shown in your contract.
We will value the Subaccount's assets at fair market value in accordance with
generally accepted accounting practices and applicable laws and regulations.
TERMINATION OF PARTICIPATION AGREEMENT
The participation agreement pursuant to which the GE Investments Funds,
Inc. -- Total Return Fund ("Total Return Fund") sells its shares to the
Variable Account contains a provision regarding the circumstances in which the
Agreement may be terminated.
GE INVESTMENTS FUNDS, INC. This agreement may be terminated at the option of
any party upon one-hundred eighty (180) days' advance written notice to the
other, unless a shorter time is agreed upon by the parties.
CALCULATION OF PERFORMANCE DATA
From time to time, we may disclose total return and other performance data for
the Subaccount pertaining to the contracts. Such performance data will be
computed, or accompanied by performance data computed, in accordance with the
standards defined by the Securities and Exchange Commission and the Financial
Industry Regulatory Authority.
The calculations of total return and other performance data do not reflect the
effect of any premium tax that may be applicable to a particular contract.
Premium taxes currently range generally from 0% to 3.5% of Purchase Payments
and are generally based on the rules of the state in which you reside.
The Subaccount Investing in the Total Return Fund
STANDARDIZED TOTAL RETURN. Sales literature or advertisements may quote total
return, including average annual total return for one or more of the Subaccount
for various periods of time including 1 year, 5 years, and 10 years, or from
inception if any of those periods are not available.
Average annual total return for a period represents the average annual
compounded rate of return that would equate an initial investment of $1,000
under a contract to the redemption value of that investment as of the last day
of the period. The ending date for each period for which total return
quotations are provided will be for the most recent practicable, considering
the type and media of the communication, and will be stated in the
communication.
For periods that began before the contract was available, performance data will
be based on the performance of the Total Return Fund adjusted for the level of
the Variable Account and contract charges currently in effect for this
contract. Average annual total return will be calculated using Subaccount unit
values.
We calculate the unit value for each Valuation Period based on the performance
of the Subaccount investing in each class of the Total Return Fund, after
deductions for the charges and expenses of the Total Return Fund, the
administrative expense charge (deducted daily at an effective annual rate of
0.15% of your assets in the Variable Account), the mortality and expense risk
charge (deducted daily at an effective annual rate of 1.35% of your assets in
the Variable Account) and $1,968.00 for all of the available rider options.
Total return does not consider the deduction of any premium taxes.
Total return will then be calculated according to the following formula:
TR = (ERV/P)/1/N/ - 1
where:

TR = the average annual total return for the period.
ERV = the ending redeemable value (reflecting deductions as
described above) of the hypothetical investment at the
end of the period.
P = a hypothetical single investment of $1,000.
N = the duration of the period (in years).

Past performance is not a guarantee of future results.
The Total Return Fund has provided the price information used to calculate the
adjusted historical performance of the Subaccount; we have not independently
verified such information.
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Other Performance Data
We may disclose cumulative total return in conjunction with the standard format
described above. The cumulative total return will be calculated using the
following formula:
CTR = (ERV/P) - 1
where:

CTR = the cumulative total return for the period.
ERV = the ending redeemable value (reflecting deductions as
described above) of the hypothetical investment at the
end of the period.
P = a hypothetical single investment of $1,000.

Other non-standardized quotations of the Total Return Fund performance may also
be used in sales literature. Such quotations will be accompanied by a
description of how they were calculated. We will accompany any non-standardized
quotations of Total Return Fund performance with standardized performance
quotations.
TAX MATTERS
Taxation of Genworth Life and Annuity Insurance Company
We do not expect to incur any Federal income tax liability attributable to
investment income or capital gains retained as part of the reserves under the
contracts. (See the "Federal Income Tax Matters" section of the prospectus.)
Based upon these expectations, no charge is being made currently to the
Variable Account for Federal income taxes. We will periodically review the
question of a charge to the Variable Account for Federal income taxes related
to the Variable Account. Such a charge may be made in future years if we
believe that we may incur Federal income taxes. This might become necessary if
the tax treatment of the Company is ultimately determined to be other than what
we currently believe it to be, if there are changes made in the Federal income
tax treatment of annuities at the corporate level, or if there is a change in
our tax status. In the event that we should incur Federal income taxes
attributable to investment income or capital gains retained as part of the
reserves under the contracts, the Contract Value would be correspondingly
adjusted by any provision or charge for such taxes.
We may also incur state and local taxes (in addition to premium taxes). At
present, these taxes, with the exception of premium taxes, are not significant.
If there is a material change in applicable state or local tax laws causing an
increase in taxes other than premium taxes (for which we currently impose a
charge), charges for such taxes attributable to the Variable Account may be
made.
IRS Required Distributions
In order to be treated as an annuity contract for Federal income tax purposes,
Section 72(s) of the Code requires any Non-Qualified Contract to provide that:
(a) if any Owner dies on or after the Annuity Commencement Date but prior to
the time the entire interest in the contract has been distributed, the
remaining portion of such interest will be distributed at least as
rapidly as under the method of distribution being used as of the date of
that Owner's death; and
(b) if any Owner dies prior to the Annuity Commencement Date, the entire
interest in the contract will be distributed:
(1) within five years after the date of that Owner's death; or
(2) as income payments which will begin within one year of that Owner's
death and which will be made over the life of the Owner's "designated
beneficiary" or over a period not extending beyond the life
expectancy of that beneficiary.
The "designated beneficiary" generally is the person who will be treated as the
sole Owner of the contract following the death of the Owner, Joint Owner or, in
certain circumstances, the Annuitant or Joint Annuitant. However, if the
"designated beneficiary" is the surviving spouse of the decedent and a Joint
Owner, these distribution rules will not apply until the surviving spouse's
death (and this spousal exception will not again be available). If any Owner is
not an individual, the death of the Annuitant or Joint Annuitant will be
treated as the death of an Owner for purposes of these rules.
Contracts issued as Non-Qualified Contracts contain provisions which are
intended to comply with the requirements of Section 72(s) of the Code, although
no regulations interpreting these requirements have yet been issued. We intend
to review such provisions and modify them if necessary to assure that they
comply with the requirements of Section 72(s) when clarified by regulation or
otherwise.
Other rules apply to contracts issued as Qualified Contracts.
GENERAL PROVISIONS
Using the Contracts as Collateral
A Non-Qualified Contract can be assigned as collateral security. We must be
notified in writing if a contract is assigned. Any payment made before the
assignment is recorded at our Home
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Office will not be affected. We are not responsible for the validity of an
assignment. Your rights and the rights of a Beneficiary may be affected by an
assignment. The basic benefits of the contract are assignable. Additional
benefits added by rider may or may not be available/eligible for assignments.
See the "Federal Income Tax Matters" provision of this prospectus.
A Qualified Contract may not be sold, assigned, transferred, discounted,
pledged or otherwise transferred except under such conditions as may be allowed
under applicable law.
The Beneficiary
You may select one or more primary and contingent beneficiaries during your
lifetime upon application and by filing a written request with our Home Office.
If you do, any Death Benefit will be paid in equal shares to the survivors in
the appropriate beneficiary class, unless you otherwise request.
Non-Participating
The contract is non-participating. No dividends are payable.
Incontestability
We will not contest the contract except as provided in any rider.
Misstatement of Age or Gender
If the Annuitant's age or gender, if applicable, was misstated on the contract
data page, any contract benefits or proceeds, or availability thereof, will be
determined using the correct age and gender.
Statement of Values
At least once each year, we will send you a statement of values within 30 days
after the report date. The statement will show Contract Value, Purchase
Payments, and charges made during the report period.
Trust as Owner or Beneficiary
If a trust is named as the owner or beneficiary of this contract and
subsequently exercises ownership rights or claims benefits hereunder, we will
have no obligation to verify that a trust is in effect or that the trustee is
acting within the scope of his/her authority. Payment of contract benefits to
the trustee shall release us from all obligations under the contract to the
extent of the payment. When we make a payment to the trustee, we will have no
obligation to ensure that such payment is applied according to the terms of the
trust agreement.
Written Notice
Any written notice should be sent to us at our Home Office at 6610 West Broad
Street, Richmond, Virginia 23230. The contract number and the Annuitant's full
name must be included.
We will send all notices to the Owner at the last known address on file with
the Company.
LEGAL DEVELOPMENTS REGARDING EMPLOYMENT-RELATED BENEFIT PLANS
On July 6, 1983, the Supreme Court held in Arizona Governing Committee for Tax
Deferred Annuity v. Norris, 463 U.S. 1073 (1983), that optional annuity
benefits provided under an employee's deferred compensation plan could not,
under Title VII of the Civil Rights Act of 1964, vary between men and women on
the basis of gender. The contract contains guaranteed annuity purchase rates
for certain optional payment plans that distinguish between men and women.
Accordingly, employers and employee organizations should consider, in
consultation with legal counsel, the impact of Norris, and Title VII generally,
on any employment-related insurance or benefit program for which a contract may
be purchased.
REGULATION OF GENWORTH LIFE AND ANNUITY INSURANCE COMPANY
Besides Federal securities laws and Virginia insurance law, we are subject to
the insurance laws and regulations of other states within which it is licensed
to operate. Generally, the Insurance Department of any other state applies the
laws of the state of domicile in determining permissible investments.
Presently, we are licensed to do business in the District of Columbia, Bermuda,
and all states, except New York.
EXPERTS
The consolidated financial statements and financial statement schedules of
Genworth Life and Annuity Insurance Company and subsidiaries as of December 31,
2009 and 2008, and for each of the years in the three-year period ended
December 31, 2009 and the financial statements of Genworth Life & Annuity VA
Separate Account 1 as of December 31, 2009 and for the periods indicated have
been included herein and in the registration statement in reliance upon reports
of KPMG LLP, independent registered public accounting firm, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing. Our reports on the consolidated financial statements and financial
statement schedules of Genworth Life and Annuity Insurance Company and
B-6
subsidiaries dated April 13, 2010 refer to a change in the method of accounting
for other-than-temporary impairments in 2009.
The business address for KPMG LLP is 1021 East Cary Street, Suite 2000,
Richmond, Virginia 23219.
FINANCIAL STATEMENTS
The Statement of Additional Information contains the consolidated financial
statements of the Company and its subsidiaries (collectively referred to in
this paragraph as the "Company") and financial statements of the Variable
Account. You should distinguish the consolidated financial statements of the
Company from the financial statements of the Variable Account. Please consider
the consolidated financial statements of the Company only as bearing on our
ability to meet our obligations under the Contracts. You should not consider
the consolidated financial statements of the Company as affecting the
investment performance of the assets held in the Variable Account.
B-7
GENWORTH LIFE & ANNUITY VA SEPARATE ACCOUNT 1
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2009
(WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S REPORT THEREON)
GENWORTH LIFE & ANNUITY VA SEPARATE ACCOUNT 1
Table of Contents
Year ended December 31, 2009

See accompanying notes to financial statements.
F-69
GENWORTH LIFE & ANNUITY VA SEPARATE ACCOUNT 1
Notes to Financial Statements
December 31, 2009
(1)DESCRIPTION OF ENTITY
Genworth Life & Annuity VA Separate Account 1 (the "Separate Account") is a
separate investment account established on August 19, 1987 by Genworth Life and
Annuity Insurance Company ("GLAIC"), pursuant to the laws of the Commonwealth
of Virginia. The Separate Account has subaccounts that currently invest in
open-end mutual funds ("Portfolios"). Such Portfolios are not sold directly to
the general public. The Portfolios are sold to GLAIC, and they may also be sold
to other insurance companies that issue variable annuity contracts and variable
life insurance policies, including affiliated insurance companies of GLAIC. In
addition, they may be sold to retirement plans. GLAIC uses the Separate Account
to support flexible premium variable deferred and immediate annuity contracts
issued by GLAIC, as well as other purposes permitted by law.
Currently, there are multiple subaccounts of the Separate Account available
under each contract. Each subaccount invests exclusively in shares representing
an interest in a separate corresponding Portfolio (a division of a Fund, the
assets of which are separate from other Portfolios that may be available in the
Fund).
The assets of the Separate Account belong to GLAIC. Nonetheless, GLAIC does
not charge the assets in the Separate Account attributable to the contracts
with liabilities arising out of any other business that GLAIC may conduct. The
assets of the Separate Account will, however, be available to cover the
liabilities of GLAIC's General Account to the extent that the assets of the
Separate Account exceed the liabilities arising under the contracts supported
by it. Income and both realized and unrealized gains or losses from the assets
of the Separate Account are credited to or charged against the Separate Account
without regard to the income, gains or losses arising out of any other business
GLAIC may conduct. Guarantees made under the contracts, including any rider
options, are based on the claims paying ability of GLAIC to the extent that the
amount of the guarantee exceeds the assets available in the Separate Account.
The Separate Account is registered with the Securities and Exchange
Commission ("SEC") as a unit investment trust under the Investment Company Act
of 1940, as amended. The Separate Account meets the definition of a separate
account under the Federal securities laws. Registration with the SEC does not
involve supervision of the management or investment practices or policies of
the Separate Account by the SEC. Contract owners assume the full investment
risk for amounts allocated by contract owners to the Separate Account.
On April 27, 2009, both J.P.Morgan Series Trust II -- JPMorgan Bond
Portfolio and JPMorgan Insurance Trust -- JPMorgan Insurance Trust Government
Bond Portfolio -- Class 1 were liquidated and the cash was reinvested in
JPMorgan Insurance Trust -- JPMorgan Insurance Trust Core Bond Portfolio --
Class 1; J.P.Morgan Series Trust II -- JPMorgan International Equity Portfolio
was liquidated and the cash was reinvested in JPMorgan Insurance Trust --
JPMorgan Insurance Trust International Equity Portfolio; J.P.Morgan Series
Trust II -- JPMorgan Mid Cap Value Portfolio was liquidated and the cash was
reinvested in JPMorgan Insurance Trust -- JPMorgan Insurance Trust Mid Cap
Value Portfolio -- Class 1; J.P.Morgan Series Trust II -- JPMorgan Small
Company Portfolio was liquidated and the cash was reinvested in JPMorgan
Insurance Trust -- JPMorgan Insurance Trust Small Cap Core Portfolio -- Class
1; and J.P.Morgan Series Trust II -- JPMorgan U.S. Large Cap Core Equity
Portfolio was liquidated and the cash was reinvested in JPMorgan Insurance
Trust -- JPMorgan Insurance Trust U.S. Equity Portfolio -- Class 1.
The following Portfolios are not available to contracts issued on or after
January 5, 2009:

As of December 31, 2009, The Prudential Series Fund -- Equity Portfolio --
Class II Shares was available as an investment option under the contract, but
not shown on the statements due to not having any activity from January 1, 2008
through December 31, 2009.
All designated Portfolios listed above are series type mutual funds.
(2)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
These financial statements have been prepared on the basis of U.S. generally
accepted accounting principles ("U.S. GAAP"). Preparing financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions
that affect amounts and disclosures reported therein. Actual results could
differ from those estimates.
(B) INVESTMENTS
Fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. In determining fair value, the Separate
Account uses market approach as the valuation technique due to the nature of
the mutual fund investments offered in the Separate Account. This technique
maximizes the use of observable inputs and minimizes the use of unobservable
inputs. Investments in mutual funds are valued at the mutual fund's closing net
asset value per share on the day of valuation.
F-71
GENWORTH LIFE & ANNUITY VA SEPARATE ACCOUNT 1
Notes to Financial Statements -- Continued
December 31, 2009
VALUATION INPUTS: Various inputs are used to determine the value of the
fund's investments. These inputs are summarized in the three broad levels
listed below:
. LEVEL 1 -- quoted prices in active markets for identical securities.
. LEVEL 2 -- observable inputs other than Level 1 quote prices (including,
but not limited to, quoted prices for similar securities, interest rates,
prepayment speeds and credit risk)
. LEVEL 3 -- unobservable inputs
The investments of the Separate Accounts are measured at fair value on a
recurring basis. All the investments are categorized as Level 1 as of
December 31, 2009.
Purchases and redemptions of investments are recorded on the Valuation Day
the request for the purchase or redemption is received. A Valuation Day is any
day that the New York Stock Exchange is open for regular trading, except for
days on which a Portfolio does not value its shares. Income distributions are
recorded on the ex-dividend date. Realized gains and losses on investments are
determined on the average cost basis. Units and unit values are disclosed as of
the last Valuation Day of the applicable year or period.
(C) UNIT CLASSES
There are several unit classes of subaccounts based on the annuity contract
through which the subaccounts are available. An indefinite number of units in
each unit class is authorized. Each unit class has its own expense structure as
noted in footnote (4)(a) below. Form numbers P1140, P1142, P1143, P1150, P1152,
P1153 and P1611 are no longer available for sale, although additional purchase
payments may still be accepted under the terms of the contracts.
(D) FEDERAL INCOME TAXES
The operations of the Separate Account are a part of, and taxed with, the
operations of GLAIC. Therefore, the Separate Account is not separately taxed as
a regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). Under existing federal income tax laws,
investment income and capital gains of the Separate Account are not taxed.
Accordingly, the Separate Account paid no federal income taxes and no federal
income tax payment was required. GLAIC is taxed as a life insurance company
under the Code.
(E) PAYMENTS DURING ANNUITIZATION
Net assets allocated to the contracts in variable payout stages ("variable
annuitization") are computed in accordance with the mortality tables in effect
at the time of contract issue. The default assumed interest rate is an
effective annual rate of 3% for all variable annuitizations paid on a life
contingency basis, with the exception of those contract owners who have
annuitized while electing the Payment Protection Annuity rider option. Under
this rider option, the assumed investment rate is 4%. The mortality risk is
fully borne by GLAIC and may result in amounts transferred from GLAIC's General
Account to the Separate Account should annuitants live longer than assumed.
GLAIC may transfer amounts from the Separate Account to its General Account
should the contracts experience higher mortality than assumed.
(F) SUBSEQUENT EVENTS
The Company evaluated subsequent events through the date the financial
statements were issued with the SEC.
F-72
GENWORTH LIFE & ANNUITY VA SEPARATE ACCOUNT 1
Notes to Financial Statements -- Continued
December 31, 2009
(3)PURCHASES AND SALES OF INVESTMENTS
The aggregate cost of the investments acquired and the aggregate proceeds of
investments sold, for the year or lesser period ended December 31, 2009 were:

(4)RELATED PARTY TRANSACTIONS
(A) GENWORTH LIFE AND ANNUITY INSURANCE COMPANY
Net purchase payments (premiums) transferred from GLAIC to the Separate
Account represent gross premiums recorded by GLAIC on its flexible premium
variable deferred and immediate annuity contracts, less deductions retained as
compensation for premium taxes. For contracts issued on or after May 1, 1993,
the deduction for premium taxes is deferred until the contracts are surrendered.
Some contracts permit contract owners to elect to allocate assets to a
Guarantee Account that is part of the General Account of GLAIC. Amounts
allocated to the Guarantee Account earn interest at the interest rate in effect
at the time of such allocation or transfer. The interest rate remains in effect
for a guaranteed period of time (at least a period of one year), after which a
new rate may be declared. Contract owners may transfer amounts from the
Guarantee Account to the subaccounts of the Separate Account and in certain
instances transfer amounts from the subaccounts of the Separate Account to the
Guarantee Account.
Generally, charges are assessed under the contracts to cover surrenders,
certain administrative expenses, and the mortality and expense risks that GLAIC
assumes, as well as any additional benefits provided under the contract such as
optional benefits, as applicable. The surrender charges are assessed to cover
certain expenses relating to the sale of a contract. The fees charged to cover
administrative expenses and mortality and expense risk charges, as well as
through certain electable rider options, are assessed through the daily unit
value calculation. Those fees are assessed on the contract owner's daily
average net assets in the Separate Account. Other charges assessed to cover
certain other administrative expenses, as well as certain optional riders, are
assessed by the redemption of units. Footnote (6) presents the total charge
percentage by unit in a range. The unit class may encompass multiple contracts
through a combination of one or more electable rider options equal to the total
amount assessed on a daily basis.
The Separate Account assesses charges associated with the contracts issued.
These charges are either assessed as a direct reduction in unit values or
through a redemption of units for all contracts contained within Separate
Account.
MORTALITY AND EXPENSE RISK CHARGE 0.40% -- 2.4% of the daily value of
(INCLUDING BENEFIT RIDERS) the assets invested in each Portfolio
This charge is assessed through a (fund).
reduction in unit values.
ADMINISTRATIVE CHARGE 0.15% -- 0.35% of the daily value of
This charge is assessed through a the assets invested in each fund.
reduction in unit values.
F-77
GENWORTH LIFE & ANNUITY VA SEPARATE ACCOUNT 1
Notes to Financial Statements -- Continued
December 31, 2009
ANNUAL ADMINISTRATIVE CHARGE $0 -- $30 per contract year invested
This charge is assessed through a in each fund.
redemption in units.
SURRENDER CHARGE 0.00% -- 9.00% on the value of the
This charge is assessed through a accumulation units purchased.
redemption in units.
(B) ACCRUED EXPENSES PAYABLE TO AFFILIATE
Charges and deductions made under the contracts for services and benefits
unpaid at year end are accrued and payable to GLAIC.
(C) CAPITALIZATION
Affiliates of the Separate Account have capitalized certain portfolios of
Genworth Variable Insurance Trust.
(D) BONUS CREDIT
For contract P1152, transfers from the General Account for payments by GLAIC
were paid in the form of bonus credits.
(E) CAPITAL BROKERAGE CORPORATION
Capital Brokerage Corporation ("CBC"), an affiliate of GLAIC, is a
Washington corporation registered with the SEC under the Securities Exchange
Act of 1934 as a broker-dealer and is a member of the Financial Industry
Regulation Authority ("FINRA"). CBC serves as the distributor and principal
underwriter for variable annuity contracts, variable life insurance policies
and certain guaranteed income annuity contracts issued by GLAIC. CBC also
serves as distributor and principal underwriter for the Genworth Variable
Insurance Trust. GLAIC pays commissions and other marketing related expenses to
CBC. Certain officers and directors of GLAIC are also officers and directors of
CBC.
(F) GENWORTH VARIABLE INSURANCE TRUST
Genworth Variable Insurance Trust (the "Fund") is an open-end diversified
management investment company. Genworth Financial Wealth Management ("GFWM") is
a registered investment adviser under the Investment Advisers Act of 1940, as
amended, and is a wholly-owned subsidiary of Genworth Financial, Inc. GFWM
currently serves as investment adviser to the Fund. As compensation for its
services, GFWM is paid an investment advisory fee by the Fund based on the
average daily net assets at an effective annual rate for the following series
as follows: 0.75% for the Genworth Calamos Growth Fund -- Service Shares, 0.60%
for the Genworth Columbia Mid Cap Value Fund -- Service Shares, 0.50% for the
Genworth Davis NY Venture Fund -- Service Shares, 0.50% for the Genworth Eaton
Vance Large Cap Value Fund -- Service Shares, 0.30% for the Genworth Goldman
Sachs Enhanced Core Bond Index Fund -- Service Shares, 0.45% for the Genworth
Legg Mason ClearBridge Aggressive Growth Fund -- Service Shares, 0.35% for the
Genworth PIMCO StocksPLUS Fund -- Service Shares, 0.70% for the Genworth Putnam
International Capital Opportunities Fund -- Service Shares and 0.65% for the
Genworth Thornburg International Value Fund -- Service Shares.
(5)CAPITAL TRANSACTIONS
All dividends and capital gain distributions of the Portfolios are
automatically reinvested in shares of the distributing Portfolios at their net
asset value on the date of distribution. Portfolio dividends or Portfolio
distributions are not paid to contract owners as additional units, but instead
are reflected in unit values.
The increase (decrease) in outstanding units and amounts by subaccount from
capital transactions for the years or lesser periods ended December 31, 2009
and 2008 are reflected in the Statements of Changes in Net Assets.
F-78
GENWORTH LIFE & ANNUITY VA SEPARATE ACCOUNT 1
Notes to Financial Statements -- Continued
December 31, 2009
(6)FINANCIAL HIGHLIGHTS
GLAIC offers several variable annuity products through the subaccounts that
have unique combinations of features and fees that are assessed to the contract
owner. Differences in fee structures result in a variety of contract expense
rates, unit values and total returns. A summary by subaccount of the
outstanding units, unit values, net assets, expense ratios, investment income
ratios and total return ratios for the years or lesser periods ended
December 31, 2009, 2008, 2007, 2006 and 2005 follows. This information is
presented as a range of minimum to maximum values based upon product grouping.
The range is determined by identifying the lowest and the highest contract
expense rate. The unit fair values and total returns related to these
identified contract expense rates are also disclosed as a range below.
Accordingly, some individual contract amounts may not be within the ranges
presented due to the timing of the introduction of new products. For periods
prior to 2006 the information is presented as a range of minimum and maximum
values, however, such information is exclusive and independent for each column,
and there is no intentional relationship among and between the ranges of values
presented for contract expense rate, unit fair value and total return.
Financial highlights are only disclosed for subaccounts that had outstanding
units as of December 31, 2009 and were available to contract owners during 2009.

F-104
GENWORTH LIFE & ANNUITY VA SEPARATE ACCOUNT 1
Notes to Financial Statements -- Continued
December 31, 2009
--------
(1)Expenses as a percentage of average net assets represent the annualized
asset-based contract expenses of the Separate Account, consisting of
mortality and expense risk charges, administrative expenses, a charge for
the bonus credit, and other rider charges for each period indicated. The
ratios include only those expenses that result in a direct reduction to unit
values. Charges made directly to the contract owner through the redemption
of units and expenses of the underlying Portfolios are excluded.
(2)The investment income ratio represents the ordinary dividends received by
the subaccount from the Portfolio divided by average net assets.
(3)The total return represents a range of minimum and maximum annual total
returns for the year or lesser period indicated and includes deductions for
expenses assessed through the daily unit value calculation. The total return
does not include any expenses assessed through the redemption of units;
inclusion of these expenses in the calculation would result in a reduction
in the total return presented. Standardized total returns shown separately
in a prospectus or marketing material for a product supported by the
Separate Account include the maximum contract charges that may be assessed
to any contract through both the daily unit value calculation and the
redemption of units. Accordingly, these standardized total returns will
generally reflect a lower return than the total return.
F-105
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Financial Statements and Financial Statement Schedules
Year ended December 31, 2009
(With Reports of Independent Registered Public Accounting Firm Thereon)
Genworth Life and Annuity Insurance Company and Subsidiaries
Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm
The Board of Directors
Genworth Life and Annuity Insurance Company:
We have audited the accompanying consolidated balance sheets of Genworth
Life and Annuity Insurance Company and subsidiaries (the Company) as of
December 31, 2009 and 2008, and the related consolidated statements of income,
changes in stockholder's equity, and cash flows for each of the years in the
three-year period ended December 31, 2009. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Genworth
Life and Annuity Insurance Company and subsidiaries as of December 31, 2009 and
2008, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2009, in conformity with U.S.
generally accepted accounting principles.
As discussed in note 2 to the consolidated financial statements, the Company
changed its method of accounting for other-than-temporary impairments in 2009.
/s/ KPMG LLP
Richmond, Virginia
April 13, 2010
F-1
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
(Amounts in millions)

See Accompanying Notes to Consolidated Financial Statements
F-2
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in millions, except share and per share amounts)

See Accompanying Notes to Consolidated Financial Statements
F-3
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholder's Equity
(Amounts in millions)

See Accompanying Notes to Consolidated Financial Statements
F-5
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2009, 2008 and 2007
(1) Formation and Nature of Business
(a) Formation
Genworth Life and Annuity Insurance Company (the "Company," "GLAIC," "we,"
"us" or "our" unless the context otherwise requires) is a stock life insurance
company operating under a charter granted by the Commonwealth of Virginia on
March 21, 1871 as The Life Insurance Company of Virginia. An affiliate of our
former ultimate parent company acquired us on April 1, 1996 and ultimately
contributed the majority of the outstanding common stock to Genworth Life
Insurance Company ("GLIC").
On May 31, 2004, we became a direct, wholly-owned subsidiary of GLIC while
remaining an indirect, wholly-owned subsidiary of Genworth Financial, Inc.
("Genworth"). Until March 12, 2007, our preferred shares were owned by an
affiliate, Brookfield Life Assurance Company Limited ("BLAC"). On March 12,
2007, we redeemed the remaining outstanding preferred shares for par value of
$110.0 million and paid $2.5 million in dividends on the redeemed preferred
shares. On April 30, 2007, the issued shares of preferred stock were retired.
On January 1, 2007, Federal Home Life Insurance Company ("FHL") and First
Colony Life Insurance Company ("FCL") merged with and into GLAIC. GLAIC was the
surviving entity. FHL and FCL were both stock life insurance companies
operating under charters granted by the Commonwealth of Virginia and both were
affiliates of the Company. We received regulatory approval from the State
Corporation Commission, Bureau of Insurance of the Commonwealth of Virginia for
these mergers.
Upon consummation of the FHL and FCL mergers, GLAIC transferred its
ownership of American Mayflower Life Insurance Company of New York ("AML"),
formerly a wholly-owned subsidiary of FCL, to Genworth Life Insurance Company
of New York ("GLICNY"), an affiliate, in exchange for a non-majority ownership
interest in GLICNY. AML merged into GLICNY, with GLICNY being the surviving
entity.
On January 1, 2007, we transferred assets of $1,377.2 million, including
cash and cash equivalents of $27.0 million and liabilities of $1,091.2 million
of AML to GLICNY in exchange for an investment in GLICNY of $334.4 million,
representing a 34.5% investment in GLICNY. Additionally, $2.1 million was
recorded related to net unrealized investment gains and derivative items in
equity related to the transfer. The transfer was recorded at book value as the
entities were under common control, and accordingly, the difference of $46.3
million between the book value of AML and the investment in GLICNY was recorded
as additional paid-in capital. Our investment in GLICNY is recorded under the
equity method of accounting. As of December 31, 2009 and 2008, the carrying
value of our investment in GLICNY was $381.4 million and $219.1 million,
respectively, and was included in other invested assets. See note 20 for
further discussion of our investment in GLICNY.
The accompanying condensed consolidated financial statements include the
historical operations and accounts of the Company and its subsidiaries which
include: Assigned Settlement, Inc., GNWLAAC Real Estate Holding, LLC, Jamestown
Life Insurance Company, River Lake Insurance Company ("River Lake I"), River
Lake Insurance Company II ("River Lake II"), River Lake Insurance Company III
("River Lake III"), River Lake Insurance Company IV Limited ("River Lake IV"),
River Lake Insurance Company V ("River Lake V"), LLC, River Lake Insurance
Company VI ("River Lake VI"), River Lake Insurance Company VII ("River Lake
VII") and Rivermont Life Insurance Company I ("Rivermont I"). All intercompany
accounts and transactions have been eliminated in consolidation.
(b) Nature of Business
We have two segments: (i) Protection; and (ii) Retirement Income, formerly
known as Retirement Income and Institutional.
F-6
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
Protection products are intended to provide protection against financial
hardship primarily after the death of an insured and to protect income and
assets from other adverse economic impacts of significant health care costs.
Our principal product lines under the Protection segment are term life
insurance, universal life insurance and Medicare supplement insurance.
Retirement income products include fixed and variable deferred and immediate
individual annuities and group variable annuities offered through retirement
plans. On May 1, 2008, we discontinued the sales of variable life insurance
policies, however, we continue to service existing policies. In 2006, we
discontinued the sale of structured settlement annuities.
We distribute our products through three primary channels: financial
intermediaries (banks, securities brokerage firms and independent
broker/dealers), independent producers (brokerage general agencies, affluent
market producer groups and specialized brokers) and dedicated sales specialists
(affiliated networks of both accountants and personal financial advisors). We
also distribute a limited number of products through a direct sales force and
defined contribution plan record keepers.
We also have Corporate and Other activities which include unallocated
corporate income and expenses and non-strategic products that are managed
outside of our operating segments. Our non-strategic products include our
institutional and corporate-owned life insurance products. Institutional
products consist of: funding agreements, funding agreements backing notes
("FABNs") and guaranteed investment contracts ("GICs").
In December 2009, we began reporting our institutional and corporate-owned
life insurance products, previously included in our Retirement Income and
Protection segments, respectively, in Corporate and Other activities, as they
were deemed non-strategic. All prior period amounts have been re-presented.
(2) Summary of Significant Accounting Policies
Our consolidated financial statements have been prepared on the basis of
U.S. generally accepted accounting principles ("U.S. GAAP"). Preparing
financial statements in conformity with U.S. GAAP requires us to make estimates
and assumptions that affect reported amounts and related disclosures. Actual
results could differ from those estimates. All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain prior
year amounts have been reclassified to conform to the current year
presentation. Any material subsequent events have been considered for
disclosure through April 13, 2010, which is the date the financial statements
were issued.
(a) Premiums
For traditional long-duration insurance contracts, we report premiums as
earned when due. For short-duration insurance contracts, we report premiums as
revenue over the terms of the related insurance policies on a pro-rata basis or
in proportion to expected claims.
Premiums received under annuity contracts without significant mortality risk
and premiums received on investment and universal life insurance products are
not reported as revenues, but rather as deposits, and are included in
liabilities for policyholder account balances.
(b) Net Investment Income and Net Investment Gains and Losses
Investment income is recognized when earned. Investment gains and losses are
calculated on the basis of specific identification.
F-7
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
Investment income on mortgage-backed and asset-backed securities is
initially based upon yield, cash flow and prepayment assumptions at the date of
purchase. Subsequent revisions in those assumptions are recorded using the
retrospective or prospective method. Under the retrospective method, used for
mortgage-backed and asset-backed securities of high credit quality (ratings
equal to or greater than "AA" or that are backed by a U.S. agency) which cannot
be contractually prepaid, amortized cost of the security is adjusted to the
amount that would have existed had the revised assumptions been in place at the
date of purchase. The adjustments to amortized cost are recorded as a charge or
credit to net investment income. Under the prospective method, which is used
for all other mortgage-backed and asset-backed securities, future cash flows
are estimated and interest income is recognized going forward using the new
internal rate of return.
(c) Policy Fees and Other Income
Policy fees and other income consist primarily of insurance charges assessed
on universal life insurance contracts, fees assessed against policyholder
account values and surrender fee income. For universal life insurance
contracts, charges to contractholder accounts for cost of insurance are
recognized as revenue when due. Variable product fees are charged to variable
annuity contractholders and variable life insurance policyholders based upon
the daily net assets of the contractholder's and policyholder's account values,
respectively, and are recognized as revenue when charged. Surrender fees are
recognized as income when the contract or policy is surrendered.
(d) Investment Securities
At the time of purchase, we designate our investment securities as either
available-for-sale or trading and report them in our consolidated balance
sheets at fair value. Our portfolio of fixed maturity securities is comprised
primarily of investment grade securities. Changes in the fair value of
available-for-sale investments, net of the effect on deferred acquisition costs
("DAC"), present value of future profits ("PVFP") and deferred income taxes,
are reflected as unrealized investment gains or losses in a separate component
of accumulated other comprehensive income (loss). Realized and unrealized gains
and losses related to trading securities are reflected in net investment gains
(losses). Trading securities are included in other invested assets in our
consolidated balance sheets.
Other-Than-Temporary Impairments On Available-For-Sale Securities
As of each balance sheet date, we evaluate securities in an unrealized loss
position for other-than-temporary impairments. For debt securities, we consider
all available information relevant to the collectability of the security,
including information about past events, current conditions, and reasonable and
supportable forecasts, when developing the estimate of cash flows expected to
be collected. More specifically for mortgage-backed and asset-backed
securities, we also utilize performance indicators of the underlying assets
including default or delinquency rates, loan to collateral value ratios,
third-party credit enhancements, current levels of subordination, vintage and
other relevant characteristics of the security or underlying assets to develop
our estimate of cash flows. Estimating the cash flows expected to be collected
is a quantitative and qualitative process that incorporates information
received from third-party sources along with certain internal assumptions and
judgments regarding the future performance of the underlying collateral. Where
possible, this data is benchmarked against third-party sources.
Prior to adoption of new accounting guidance related to the recognition and
presentation of other-than-temporary impairments on April 1, 2009, we generally
recognized an other-than-temporary impairment on debt securities in an
unrealized loss position when we did not expect full recovery of value or did
not have the intent
F-8
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
and ability to hold such securities until they had fully recovered their
amortized cost. The recognition of other-than-temporary impairments prior to
April 1, 2009 represented the entire difference between the amortized cost and
fair value with this difference being recorded in net income (loss) as an
adjustment to the amortized cost of the security.
Beginning on April 1, 2009, we recognize other-than-temporary impairments on
debt securities in an unrealized loss position when one of the following
circumstances exists:
. we do not expect full recovery of our amortized cost based on the
estimate of cash flows expected to be collected,
. we intend to sell a security or
. it is more likely than not that we will be required to sell a security
prior to recovery.
For other-than-temporary impairments recognized during the period, we
present the total other-than-temporary impairments, the portion of
other-than-temporary impairments included in other comprehensive income (loss)
("OCI") and the net other-than-temporary impairments as supplemental disclosure
presented on the face of our consolidated statements of income.
Total other-than-temporary impairments are calculated as the difference
between the amortized cost and fair value that emerged in the current period.
For other-than-temporarily impaired securities where we do not intend to sell
the security and it is not more likely than not that we will be required to
sell the security prior to recovery, total other-than-temporary impairments are
adjusted by the portion of other-than-temporary impairments recognized in OCI
("non-credit"). Net other-than-temporary impairments recorded in net income
(loss) represent the credit loss on the other-than-temporarily impaired
securities with the offset recognized as an adjustment to the amortized cost to
determine the new amortized cost basis of the securities.
For securities that were deemed to be other-than-temporarily impaired and a
non-credit loss was recorded in OCI, the amount recorded as an unrealized gain
(loss) represents the difference between the current fair value and the new
amortized cost for each period presented. The unrealized gain (loss) on an
other-than-temporarily impaired security is recorded as a separate component in
OCI until the security is sold or until we record an other-than-temporary
impairment where we intend to sell the security or will be required to sell the
security prior to recovery.
To estimate the amount of other-than-temporary impairment attributed to
credit losses on debt securities where we do not intend to sell the security
and it is not more likely than not that we will be required to sell the
security prior to recovery, we determine our best estimate of the present value
of the cash flows expected to be collected from a security by discounting these
cash flows at the current effective yield on the security prior to recording
any other-than-temporary impairment. If the present value of the discounted
cash flows is lower than the amortized cost of the security, the difference
between the present value and amortized cost represents the credit loss
associated with the security with the remaining difference between fair value
and amortized cost recorded as a non-credit other-than-temporary impairment in
OCI.
The evaluation of other-than-temporary impairments is subject to risks and
uncertainties and is intended to determine the appropriate amount and timing
for recognizing an impairment charge. The assessment of whether such impairment
has occurred is based on management's best estimate of the cash flows expected
to be collected at the individual security level. We regularly monitor our
investment portfolio to ensure that securities that may be
other-than-temporarily impaired are identified in a timely manner and that any
impairment charge is recognized in the proper period.
F-9
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
While the other-than-temporary impairment model for debt securities
generally includes fixed maturity securities, there are certain hybrid
securities that are classified as fixed maturity securities where the
application of a debt impairment model depends on whether there has been any
evidence of deterioration in credit of the issuer. Under certain circumstances,
evidence of deterioration in credit of the issuer may result in the application
of the equity impairment model.
For equity securities, we recognize an impairment charge in the period in
which we determine that the security will not recover to book value within a
reasonable period. We determine what constitutes a reasonable period on a
security-by-security basis based upon consideration of all the evidence
available to us, including the magnitude of an unrealized loss and its
duration. In any event, this period does not exceed 18 months for common equity
securities. We measure other-than-temporary impairments based upon the
difference between the amortized cost of a security and its fair value.
(e) Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. We have fixed maturity, equity and
trading securities, derivatives, embedded derivatives, securities held as
collateral, separate account assets and certain other financial instruments,
which are carried at fair value.
Fair value measurements are based upon observable and unobservable inputs.
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect our view of market assumptions in the absence of
observable market information. We utilize valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs. All
assets and liabilities carried at fair value are classified and disclosed in
one of the following three categories:
. Level 1--Quoted prices for identical instruments in active markets.
. Level 2--Quoted prices for similar instruments in active markets; quoted
prices for identical or similar instruments in markets that are not
active; and model-derived valuations whose inputs are observable or whose
significant value drivers are observable.
. Level 3--Instruments whose significant value drivers are unobservable.
Level 1 primarily consists of financial instruments whose value is based on
quoted market prices such as exchange-traded derivatives and actively traded
mutual fund investments.
Level 2 includes those financial instruments that are valued using
industry-standard pricing methodologies, models or other valuation
methodologies. These models are primarily industry-standard models that
consider various inputs, such as interest rate, credit spread and foreign
exchange rates for the underlying financial instruments. All significant inputs
are observable, or derived from observable information, in the marketplace or
are supported by observable levels at which transactions are executed in the
marketplace. Financial instruments in this category primarily include: certain
public and private corporate fixed maturity and equity securities; government
or agency securities; certain mortgage-backed and asset-backed securities;
securities held as collateral; and certain non-exchange-traded derivatives such
as interest rate or cross currency swaps.
Level 3 is comprised of financial instruments whose fair value is estimated
based on industry-standard pricing methodologies and internally developed
models utilizing significant inputs not based on, nor corroborated by, readily
available market information. In limited instances, this category may also
utilize non-binding broker
F-10
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
quotes. This category primarily consists of certain less liquid fixed maturity,
equity and trading securities and certain derivative instruments where we
cannot corroborate the significant valuation inputs with market observable data.
As of each reporting period, all assets and liabilities recorded at fair
value are classified in their entirety based on the lowest level of input that
is significant to the fair value measurement. Our assessment of the
significance of a particular input to the fair value measurement in its
entirety requires judgment, and considers factors specific to the asset or
liability, such as the relative impact on the fair value as a result of
including a particular input. We review the fair value hierarchy
classifications each reporting period. Changes in the observability of the
valuation attributes may result in a reclassification of certain financial
assets or liabilities. Such reclassifications are reported as transfers in and
out of Level 3 at the beginning fair value for the reporting period in which
the changes occur.
The vast majority of our fixed maturity and equity securities use Level 2
inputs for the determination of fair value. These fair values are obtained
primarily from industry-standard pricing methodologies based on market
observable information. Certain structured securities valued using
industry-standard pricing methodologies utilize significant unobservable inputs
to estimate fair value, resulting in the fair value measurements being
classified as Level 3. We also utilize internally developed pricing models to
produce estimates of fair value primarily utilizing Level 2 inputs along with
certain Level 3 inputs. The internally developed models include matrix pricing
where we discount expected cash flows utilizing market interest rates obtained
from market sources based on the credit quality and duration of the instrument
to determine fair value. For securities that may not be reliably priced using
internally developed pricing models, we estimate fair value using indicative
market prices. These prices are indicative of an exit price, but the
assumptions used to establish the fair value may not be observable, or
corroborated by market observable information, and represent Level 3 inputs.
The fair value of securities held as collateral is primarily based on Level
2 inputs from market information for the collateral that is held on our behalf
by the custodian. The fair value of separate account assets is based on the
quoted prices of the underlying fund investments and, therefore, represents
Level 1 pricing.
The fair value of derivative instruments primarily utilizes Level 2 inputs.
Certain derivative instruments are valued using significant unobservable inputs
and are classified as Level 3 measurements. The classification of fair value
measurements for derivative instruments, including embedded derivatives
requiring bifurcation, was determined based on consideration of several inputs
including: closing exchange or over-the-counter market price quotations; time
value and volatility factors underlying options; foreign exchange rates; market
interest rates; and non-performance risk. For product-related embedded
derivatives, we also include certain policyholder assumptions in the
determination of fair value.
For assets carried at fair value, the non-performance of the counterparties
is considered in the determination of fair value measurement for those assets.
Similarly, the fair value measurement of a liability must reflect the entity's
own non-performance risk. Therefore, the impact of non-performance risk, as
well as any potential credit enhancements (e.g., collateral), has been
considered in the fair value measurement of both assets and liabilities. The
liabilities recorded at fair value include derivative and guaranteed minimum
withdrawal benefits ("GMWB") liabilities.
We continually assess the non-performance risk on our liabilities recorded
at fair value and will make adjustments in future periods as additional
information is obtained that would indicate such an adjustment is necessary to
accurately present the fair value measurement in accordance with U.S. GAAP.
F-11
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
(f) Commercial Mortgage Loans
Commercial mortgage loans are generally stated at principal amounts
outstanding, net of deferred expenses and allowance for loan loss. Interest on
loans is recognized on an accrual basis at the applicable interest rate on the
principal amount outstanding. Loan origination fees and direct costs, as well
as premiums and discounts, are amortized as level yield adjustments over the
respective loan terms. Unamortized net fees or costs are recognized upon early
repayment of the loans. Loan commitment fees are generally deferred and
amortized on an effective yield basis over the term of the loan. Impaired loans
are generally carried on a non-accrual status. Loans are ordinarily placed on
non-accrual status when, in management's opinion, the collection of principal
or interest is unlikely, or when the collection of principal or interest is 90
days or more past due.
The allowance for loan losses is maintained at a level that management
determines is adequate to absorb estimated probable incurred losses in the loan
portfolio. Management's evaluation process to determine the adequacy of the
allowance utilizes an analytical model based on historical loss experience
adjusted for current events, trends and economic conditions. The actual amounts
realized could differ in the near term from the amounts assumed in arriving at
the allowance for loan losses reported in the consolidated financial statements.
All losses of principal are charged to the allowance for loan losses in the
period in which the loan is deemed to be uncollectible. Additions and
reductions are made to the allowance through periodic provisions or benefits to
net investment gains (losses).
(g) Securities Lending Activity
We engage in certain securities lending transactions for the purpose of
enhancing the yield on our investment securities portfolio, which require the
borrower to provide collateral, consisting of cash and government securities,
on a daily basis, in amounts equal to or exceeding 102% of the fair value of
the applicable securities loaned. We maintain effective control over all loaned
securities and, therefore, continue to report such securities as fixed maturity
securities on the consolidated balance sheets. Cash and non-cash collateral,
such as a security, received by us on securities lending transactions is
reflected in other invested assets with an offsetting liability recognized in
other liabilities for the obligation to return the collateral. Any cash
collateral received is reinvested by our custodian based upon the investment
guidelines provided within our agreement. The reinvested cash collateral is
primarily invested in U.S. and foreign government securities, U.S. government
agency securities, asset-backed securities and corporate debt securities, all
of which have scheduled maturities of less than three years. As of December 31,
2009 and 2008, the fair value of securities loaned under the securities lending
program was $170.6 million and $121.0 million, respectively. As of December 31,
2009 and 2008, the fair value of collateral held under the securities lending
program was $175.8 million and $128.0 million, respectively, and the obligation
to return collateral of $176.0 million and $128.2 million, respectively, was
included in other liabilities in the consolidated balance sheets. We had no
non-cash collateral as of December 31, 2009 and 2008.
(h) Cash and Cash Equivalents
Certificates of deposit, money market funds and other time deposits with
original maturities of 90 days or less are considered cash equivalents in the
consolidated balance sheets and consolidated statements of cash flows. Items
with maturities greater than 90 days but less than one year at the time of
acquisition are considered short-term investments.
F-12
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
(i) Deferred Acquisition Costs
Acquisition costs include costs that vary with, and are primarily related
to, the acquisition of insurance and investment contracts. Such costs are
deferred and amortized as follows:
Long-Duration Contracts. Acquisition costs include commissions in excess of
ultimate renewal commissions, solicitation and printing costs, sales material
and some support costs, such as underwriting and contract and policy issuance
expenses. Amortization for traditional long-duration insurance products is
determined as a level proportion of premium based on commonly accepted
actuarial methods and reasonable assumptions about mortality, morbidity, lapse
rates, expenses and future yield on related investments established when the
contract or policy is issued. Amortization is adjusted each period to reflect
policy lapse or termination rates as compared to anticipated experience.
Amortization for annuity contracts without significant mortality risk and for
investment and universal life insurance products is based on estimated gross
profits. Estimated gross profits are adjusted quarterly to reflect actual
experience to date or for the unlocking of underlying key assumptions based on
experience studies.
Short-Duration Contracts. Acquisition costs consist primarily of commissions
and premium taxes and are amortized ratably over the terms of the underlying
policies.
We regularly review all of these assumptions and periodically test DAC for
recoverability. For deposit products, if the current present value of estimated
future gross profits is less than the unamortized DAC for a line of business, a
charge to income is recorded for additional DAC amortization, and for certain
products, an increase in benefit reserves may be required. For other products,
if the benefit reserve plus anticipated future premiums and interest income for
a line of business are less than the current estimate of future benefits and
expenses (including any unamortized DAC), a charge to income is recorded for
additional DAC amortization or for increased benefit reserves. For the years
ended December 31, 2009 and 2008, we recorded a charge to DAC as a result of
our loss recognition and DAC recoverability testing of $49.0 million and $46.1
million, respectively. For the year ended December 31, 2007, there were no
charges to income recorded as a result of our DAC recoverability or loss
recognition testing.
(j) Intangible Assets
Present Value of Future Profits. In conjunction with the acquisition of a
block of insurance policies or investment contracts, a portion of the purchase
price is assigned to the right to receive future gross profits arising from
existing insurance and investment contracts. This intangible asset, called
PVFP, represents the actuarially estimated present value of future cash flows
from the acquired policies. PVFP is amortized, net of accreted interest, in a
manner similar to the amortization of DAC.
We regularly review all of these assumptions and periodically test PVFP for
recoverability. For deposit products, if the current present value of estimated
future gross profits is less than the unamortized PVFP for a line of business,
a charge to income is recorded for additional PVFP amortization. For other
products, if the benefit reserve plus anticipated future premiums and interest
income for a line of business are less than the current estimate of future
benefits and expenses (including any unamortized PVFP), a charge to income is
recorded for additional PVFP amortization or for increased benefit reserves.
For the years ended December 31, 2009, 2008 and 2007, no charges to income were
recorded as a result of our PVFP recoverability or loss recognition testing.
F-13
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
Deferred Sales Inducements to Contractholders. We defer sales inducements to
contractholders for features on variable annuities that entitle the
contractholder to an incremental amount to be credited to the account value
upon making a deposit, and for fixed annuities with crediting rates higher than
the contract's expected ongoing crediting rates for periods after the
inducement. Deferred sales inducements to contractholders are reported as a
separate intangible asset and amortized in benefits and other changes in policy
reserves using the same methodology and assumptions used to amortize DAC.
Software. Purchased software and certain application development costs
related to internally developed software are capitalized above de minimus
thresholds. When the software is ready for its intended use, the amounts
capitalized are amortized over the expected useful life, not to exceed five
years.
(k) Goodwill
Goodwill is not amortized but is tested for impairment at least annually and
between annual tests if an event occurs or circumstances change that would more
likely than not reduce the fair value of the reporting unit below its carrying
value. We test goodwill using a fair value approach, which requires the use of
estimates and judgment, at the "reporting unit" level. A reporting unit is the
operating segment, or a business one level below that operating segment (the
"component" level) if discrete financial information is prepared and regularly
reviewed by management at the component level. We recognize an impairment
charge for any amount by which the carrying amount of a reporting unit's
goodwill exceeds its fair value.
The determination of fair value for our reporting units is primarily based
on an income approach whereby we use discounted cash flows for each reporting
unit. When available, and as appropriate, we use market approaches or other
valuation techniques to corroborate discounted cash flow results. The
discounted cash flow model used for each reporting unit is based on either:
operating income or statutory distributable income, depending on the reporting
unit being valued.
The cash flows used to determine fair value are dependent on a number of
significant management assumptions based on our historical experience, our
expectations of future performance and expected economic environment. Our
estimates are subject to change given the inherent uncertainty in predicting
future performance and cash flows, which are impacted by such things as
policyholder behavior, competitor pricing, new product introductions and
specific industry and market conditions. Additionally, the discount rate used
in our discounted cash flow approach is based on management's judgment of the
appropriate rate for each reporting unit based on the relative risk associated
with the projected cash flows.
For the years ended December 31, 2009, 2008 and 2007, no charges were
recorded as a result of our goodwill impairment testing. See note 6 for
additional information related to goodwill.
(l) Reinsurance
Premium revenue, benefits and acquisition and operating expenses, net of
deferrals, are reported net of the amounts relating to reinsurance ceded to and
assumed from other companies. Amounts due from reinsurers for incurred and
estimated future claims are reflected in the reinsurance recoverable asset. The
cost of reinsurance is accounted for over the terms of the related treaties
using assumptions consistent with those used to account for the underlying
reinsured policies. Premium revenue, benefits and acquisition and operating
expenses, net of deferrals, for reinsurance contracts that do not qualify for
reinsurance accounting are accounted for under the deposit method of accounting.
F-14
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
(m) Derivatives
Derivative financial instruments are used to manage risk through one of four
principal risk management strategies including: (i) liabilities; (ii) invested
assets; (iii) portfolios of assets or liabilities; and (iv) forecasted
transactions.
On the date we enter into a derivative contract, management designates the
derivative as a hedge of the identified exposure (fair value or cash flow). If
a derivative does not qualify for hedge accounting, the changes in its fair
value and all scheduled periodic settlement receipts and payments are reported
in income.
We formally document all relationships between hedging instruments and
hedged items, as well as our risk management objective and strategy for
undertaking various hedge transactions. In this documentation, we specifically
identify the asset, liability or forecasted transaction that has been
designated as a hedged item, state how the hedging instrument is expected to
hedge the risks related to the hedged item, and set forth the method that will
be used to retrospectively and prospectively assess the hedging instrument's
effectiveness and the method that will be used to measure hedge
ineffectiveness. We generally determine hedge effectiveness based on total
changes in fair value of the hedged item attributable to the hedged risk and
the total changes in fair value of the derivative instrument.
We discontinue hedge accounting prospectively when: (i) it is determined
that the derivative is no longer effective in offsetting changes in the fair
value or cash flows of a hedged item; (ii) the derivative expires or is sold,
terminated or exercised; (iii) the derivative is de-designated as a hedge
instrument; or (iv) it is probable that the forecasted transaction will not
occur.
For all qualifying and highly effective cash flow hedges, the effective
portion of changes in fair value of the derivative instrument is reported as a
component of OCI. The ineffective portion of changes in fair value of the
derivative instrument is reported as a component of income. When hedge
accounting is discontinued because it is probable that a forecasted transaction
will not occur, the derivative continues to be carried in the consolidated
balance sheets at its fair value, and gains and losses that were accumulated in
OCI are recognized immediately in income. When the hedged forecasted
transaction is no longer probable, but is reasonably possible, the accumulated
gain or loss remains in OCI and is recognized when the transaction affects
income; however, prospective hedge accounting for the transaction is
terminated. In all other situations in which hedge accounting is discontinued
on a cash flow hedge, amounts previously deferred in OCI are reclassified into
income when income is impacted by the variability of the cash flow of the
hedged item.
For all qualifying and highly effective fair value hedges, the changes in
fair value of the derivative instrument are reported in income. In addition,
changes in fair value attributable to the hedged portion of the underlying
instrument are reported in income. When hedge accounting is discontinued
because it is determined that the derivative no longer qualifies as an
effective fair value hedge, the derivative continues to be carried in the
consolidated balance sheets at its fair value, but the hedged asset or
liability will no longer be adjusted for changes in fair value. In all other
situations in which hedge accounting is discontinued, the derivative is carried
at its fair value in the consolidated balance sheets, with changes in its fair
value recognized in the current period as income.
We may enter into contracts that are not themselves derivative instruments
but contain embedded derivatives. For each contract, we assess whether the
economic characteristics of the embedded derivative are clearly and closely
related to those of the host contract and determine whether a separate
instrument with the same terms as the embedded instrument would meet the
definition of a derivative instrument.
F-15
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
If it is determined that the embedded derivative possesses economic
characteristics that are not clearly and closely related to the economic
characteristics of the host contract, and that a separate instrument with the
same terms would qualify as a derivative instrument, the embedded derivative is
separated from the host contract and accounted for as a stand-alone derivative.
Such embedded derivatives are recorded in the consolidated balance sheets at
fair value and are classified consistent with their host contract. Changes in
their fair value are recognized in the current period in income. If we are
unable to properly identify and measure an embedded derivative for separation
from its host contract, the entire contract is carried in the consolidated
balance sheets at fair value, with changes in fair value recognized in the
current period in income.
Changes in the fair value of non-qualifying derivatives, including embedded
derivatives, changes in fair value of certain derivatives and related hedged
items in fair value hedge relationships and hedge ineffectiveness on cash flow
hedges are reported in net investment gains (losses).
(n) Separate Accounts
The separate account assets represent funds for which the investment income
and investment gains and losses accrue directly to the variable annuity
contractholders and variable life insurance policyholders. We assess mortality
and expense risk fees and administration charges on the assets allocated to the
separate accounts. The separate account assets are carried at fair value and
are equal to the liabilities that represent the contractholders' and
policyholders' equity in those assets.
(o) Insurance Reserves
Future Policy Benefits
We include insurance-type contracts, such as traditional life insurance, in
the liability for future policy benefits. Insurance-type contracts are broadly
defined to include contracts with significant mortality and/or morbidity risk.
The liability for future benefits of insurance contracts is the present value
of such benefits less the present value of future net premiums based on
mortality, morbidity and other assumptions, which are appropriate at the time
the policies are issued or acquired. These assumptions are periodically
evaluated for potential reserve deficiencies. Reserves for cancelable accident
and health insurance are based upon unearned premiums, claims incurred but not
reported and claims in the process of settlement. This estimate is based on our
historical experience and that of the insurance industry, adjusted for current
trends. Any changes in the estimated liability are reflected in income as the
estimates are revised.
Policyholder Account Balances
We include investment-type contracts and our universal life insurance
contracts in the liability for policyholder account balances. Investment-type
contracts are broadly defined to include contracts without significant
mortality or morbidity risk. Payments received from sales of investment
contracts are recognized by providing a liability equal to the current account
value of the policyholders' contracts. Interest rates credited to investment
contracts are guaranteed for the initial policy term with renewal rates
determined as necessary by management.
(p) Liability for Policy and Contract Claims
The liability for policy and contract claims represents the amount needed to
provide for the estimated ultimate cost of settling claims relating to insured
events that have occurred on or before the end of the respective
F-16
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
reporting period. The estimated liability includes requirements for future
payments of: (a) claims that have been reported to the insurer; (b) claims
related to insured events that have occurred but that have not been reported to
the insurer as of the date the liability is estimated; and (c) claim adjustment
expenses. Claim adjustment expenses include costs incurred in the claim
settlement process such as legal fees and costs to record, process and adjust
claims.
Management considers the liability for policy and contract claims provided
to be satisfactory to cover the losses that have occurred. Management monitors
actual experience, and where circumstances warrant, will revise its
assumptions. The methods of determining such estimates and establishing the
reserves are reviewed continuously and any adjustments are reflected in
operations in the period in which they become known. Future developments may
result in losses and loss expenses greater or less than the liability for
policy and contract claims provided.
(q) Income Taxes
We determine deferred tax assets and/or liabilities by multiplying the
differences between the financial reporting and tax reporting bases for assets
and liabilities by the enacted tax rates expected to be in effect when such
differences are recovered or settled, if there is no change in the law. The
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
For the period beginning January 1, 2004, and ending on the date of the
transfer of our outstanding capital stock to Genworth, we were included in the
consolidated federal income tax return of General Electric ("GE"). During this
period, we were subject to a tax sharing arrangement that allocated taxes on a
separate company basis, but provided benefit for current utilization of losses
and credits.
Subsequent to the transfer of our outstanding capital stock to Genworth, we
file a consolidated life insurance federal income tax return with our parent,
GLIC, and its other life insurance affiliates. We are subject to a separate tax
sharing agreement, as approved by state insurance regulators, which allocates
taxes on a separate company basis but provides benefit for current utilization
of losses and credits. Intercompany balances are settled at least annually.
We are party to an assumption agreement with our indirect parent company,
Genworth North America Corporation ("GNA"), whereby GNA assumes responsibility
for any tax contingencies (that will not give rise to future reversals) on our
behalf. These contingencies are reflected as an expense of the Company when
incurred and are included in current tax expense. The Company recognizes the
corresponding amount as a change in stockholder's equity since the liability
for the contingency is assumed by GNA.
(r) Variable Interest Entities
We are involved in certain entities that are considered variable interest
entities ("VIEs") as defined under U.S. GAAP, and, accordingly, we evaluate the
VIE to determine whether we are the primary beneficiary and are required to
consolidate the assets and liabilities of the entity. The determination of the
primary beneficiary for a VIE can be complex and requires management judgment
regarding the expected results of the entity and how those results are absorbed
by beneficial interest holders.
Our primary involvement related to VIEs includes securitization transactions
and certain investments.
F-17
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
We have retained interests in VIEs where we are the servicer and transferor
of certain assets that were sold to a newly created VIE. Additionally, for
certain securitization transactions, we were the transferor of certain assets
that were sold to a newly created VIE but did not retain any beneficial
interest in the VIE other than acting as the servicer of the underlying assets.
We hold investments in certain structures that are considered VIEs. Our
investments represent beneficial interests that are primarily in the form of
structured securities or alternative investments. Our involvement in these
structures typically represent a passive investment in the returns generated by
the VIE and typically do not result in having significant influence over the
economic performance of the VIE.
As of December 31, 2009 and 2008, we were not required to consolidate any
VIEs where there are third-party beneficial interest holders.
(s) Accounting Changes
Fair Value Measurements and Disclosures--Measuring Liabilities At Fair Value
On October 1, 2009, we adopted new accounting guidance related to measuring
liabilities at fair value. This accounting guidance clarified techniques for
measuring the fair value of liabilities when quoted market prices for the
identical liability are not available. The adoption of this new accounting
guidance did not have a material impact on our consolidated financial
statements.
Fair Value Measurements and Disclosures--Investments In Certain Entities
That Calculate Net Asset Value Per Share
On October 1, 2009, we adopted new accounting guidance related to fair value
measurements and disclosures that provided guidance on the fair value
measurement in certain entities that calculate net asset value per share. The
adoption of this new accounting guidance did not have a material impact on our
consolidated financial statements.
The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles
On July 1, 2009, we adopted new accounting guidance related to the
codification of accounting standards and the hierarchy of U.S. GAAP established
by the Financial Accounting Standards Board (the "FASB"). This accounting
guidance established two levels of U.S. GAAP, authoritative and
nonauthoritative. The FASB Accounting Standards Codification (the
"Codification") is the source of authoritative, nongovernmental U.S. GAAP,
except for rules and interpretive releases of the U.S. Securities and Exchange
Commission ("SEC"), which are also sources of authoritative U.S. GAAP for SEC
registrants. All other accounting literature is nonauthoritative. The adoption
of this new accounting guidance did not have a material impact on our
consolidated financial statements.
Subsequent Events
On June 30, 2009, we adopted new accounting guidance related to accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. This accounting
guidance required the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date. The adoption of this
new accounting guidance did not have a material impact on our consolidated
financial statements.
F-18
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
Recognition and Presentation of Other-Than-Temporary Impairments
On April 1, 2009, we adopted new accounting guidance related to the
recognition and presentation of other-than-temporary impairments. This
accounting guidance amended the other-than-temporary impairment guidance for
debt securities and modified the presentation and disclosure requirements for
other-than-temporary impairment disclosures for debt and equity securities.
This accounting guidance also amended the requirement for management to
positively assert the ability and intent to hold a debt security to recovery to
determine whether an other-than-temporary impairment exists and replaced this
provision with the assertion that we do not intend to sell or it is not more
likely than not that we will be required to sell a security prior to recovery.
Additionally, this accounting guidance modified the presentation of
other-than-temporary impairments for certain debt securities to only present
the impairment loss in net income (loss) that represents the credit loss
associated with the other-than-temporary impairment with the remaining
impairment loss being presented in OCI. On April 1, 2009, we recorded a net
cumulative effect adjustment of $188.5 million to retained earnings with an
offset to accumulated other comprehensive income (loss) of $188.4 million
related to the adoption of this new accounting guidance. The following
summarizes the components for the cumulative effect adjustment:

Determining Fair Value When the Volume and Level of Activity For the Asset
Or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly
On April 1, 2009, we adopted new accounting guidance related to determining
fair value when the volume and level of activity for the asset or liability
have significantly decreased and identifying transactions that are not orderly.
This accounting guidance provided additional guidance for determining fair
value when the volume or level of activity for an asset or liability has
significantly decreased and identified circumstances that indicate a
transaction is not orderly. The adoption of this new accounting guidance did
not have a material impact on our consolidated financial statements.
Fair Value Measurements of Certain Nonfinancial Assets and Liabilities
On January 1, 2009, we adopted new accounting guidance related to fair value
measurements of certain nonfinancial assets and liabilities, such as impairment
testing of goodwill and indefinite-lived intangible assets. The adoption of
this new accounting guidance did not have a material impact on our consolidated
financial statements.
Disclosures About Derivative Instruments and Hedging Activities
On January 1, 2009, we adopted new accounting guidance related to
disclosures about derivative instruments and hedging activities. This statement
required enhanced disclosures about an entity's derivative and hedging
activities. The adoption of this new accounting guidance did not have a
material impact on our consolidated financial statements.
F-19
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
Business Combinations
On January 1, 2009, we adopted new accounting guidance related to business
combinations. This accounting guidance established principles and requirements
for how an acquirer recognizes and measures certain items in a business
combination, as well as disclosures about the nature and financial effects of a
business combination. The adoption of this new accounting guidance did not have
a material impact on our consolidated financial statements.
Transfers of Financial Assets and Interests In Variable Interest Entities
On December 31, 2008, we adopted new accounting guidance related to
disclosures by public entities about transfers of financial assets and
interests in VIEs. This new accounting guidance amends the disclosure
requirements regarding transfers of financial assets and involvement in VIEs to
require additional disclosures for public entities. The adoption of this new
accounting guidance did not have a material impact on our consolidated
financial statements.
Credit Derivatives and Certain Guarantees
On December 31, 2008, we adopted new accounting guidance related to
disclosures about credit derivatives and certain guarantees. This accounting
guidance requires certain disclosures by sellers of credit derivatives and
requires additional disclosure about the current status of the
payment/performance risk of guarantees. The adoption of this new accounting
guidance did not have a material impact on our consolidated financial
statements.
Other-Than-Temporary Impairments On Available-For-Sale Securities
On October 14, 2008, the Office of the Chief Accountant at the SEC, issued a
letter to the FASB that stated, given the debt characteristics of hybrid
securities, they would not object to the application of a debt impairment model
to hybrid investments provided there has been no evidence of deterioration in
credit of the issuer. A debt impairment model could be used for filings
subsequent to October 14, 2008, until the FASB further addresses the
appropriate impairment model. As a result, management began using and will
continue to use the debt impairment model as long as there has been no evidence
of deterioration in credit of the issuer as of the balance sheet date.
Other-Than-Temporary Impairments of Certain Structured Securities
On October 1, 2008, we adopted new accounting guidance related to impairment
guidance. This accounting guidance amends the impairment guidance to require
all available information be used to produce our best estimate of cash flows
rather than relying exclusively upon what a market participant would use to
determine the current fair value. The adoption of this new accounting guidance
did not have a material impact on our consolidated financial statements.
Determining Fair Value When A Market Is Not Active
On September 30, 2008, we adopted new accounting guidance related to
determining the fair value of a financial asset when the market for that asset
is not active. The accounting guidance provides guidance and clarification on
how management's internal assumptions, observable market information and market
quotes are considered in inactive markets. The adoption of this new accounting
guidance did not have a material impact on our consolidated financial
statements.
F-20
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
Fair Value Measurements
On January 1, 2008, we adopted new accounting guidance related to fair value
measurements. This accounting guidance defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. The adoption of this new accounting guidance did not have a
material impact on our consolidated financial statements. Additionally, on
January 1, 2008, we elected the partial adoption of this accounting guidance to
allow an entity to delay the application until January 1, 2009 for certain
non-financial assets and liabilities. Under the provisions of the accounting
guidance, we will delay the application for fair value measurements used in the
impairment testing of goodwill and indefinite-lived intangible assets and
eligible non-financial assets and liabilities included within a business
combination. The adoption of this new accounting guidance did not have a
material impact on our consolidated financial statements.
Fair Value Option For Financial Assets and Financial Liabilities
On January 1, 2008, we adopted new accounting guidance related to the fair
value option for financial assets and financial liabilities. This accounting
guidance provides an option, on specified election dates, to report selected
financial assets and liabilities, including insurance contracts, at fair value.
Subsequent changes in fair value for designated items are reported in income in
the current period. The adoption of this new accounting guidance did not impact
our consolidated financial statements as no items were elected for measurement
at fair value upon initial adoption. We will continue to evaluate eligible
financial assets and liabilities on their election dates. Any future elections
will be disclosed in accordance with the provisions outlined in the accounting
guidance.
Amendment to Guidance For Offsetting of Amounts Related To Certain Contracts
On January 1, 2008, we adopted new accounting guidance for offsetting of
amounts related to certain contracts. This accounting guidance allows fair
value amounts recognized for collateral to be offset against fair value amounts
recognized for derivative instruments that are executed with the same
counterparty under certain circumstances. It also requires an entity to
disclose the accounting policy decision to offset, or not to offset, fair value
amounts. We do not, and have not previously, offset the fair value amounts
recognized for derivatives with the amounts recognized as collateral.
Accounting For Uncertainty In Income Taxes
On January 1, 2007, we adopted new accounting guidance related to accounting
for uncertainty in income taxes. This accounting guidance clarifies the
criteria that must be satisfied to recognize the financial statement benefit of
a position taken in our tax returns. The criteria for recognition in the
consolidated financial statements require an affirmative determination that it
is more likely than not, based on a tax position's technical merits, that we
are entitled to the benefit of that position.
Upon adoption of this new accounting guidance on January 1, 2007, the total
amount of unrecognized tax benefits was $74.3 million, of which, $53.3 million,
if recognized, would affect the effective tax rate.
Accounting By Insurance Enterprises For DAC In Connection With Modifications
Or Exchanges of Insurance Contracts
On January 1, 2007, we adopted new accounting guidance related to accounting
by insurance enterprises for DAC in connection with modifications or exchanges
of insurance contracts. This accounting guidance provides
F-21
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
guidance on accounting for DAC and other balances on an internal replacement,
defined broadly as a modification in product benefits, features, rights or
coverages that occurs by the exchange of an existing contract for a new
contract, or by amendment, endorsement or rider to an existing contract, or by
the election of a benefit, feature, right or coverage within an existing
contract. The adoption of this new accounting guidance had no impact on our
consolidated financial statements.
(t) Accounting Pronouncements Not Yet Adopted
In March 2010, the FASB issued new accounting guidance clarifying the scope
exception for embedded credit derivatives and when those features would be
bifurcated from the host contract. Under the new accounting guidance, only
embedded credit derivative features that are in the form of subordination of
one financial instrument to another would not be subject to the bifurcation
requirements. Accordingly, entities will be required to bifurcate any embedded
credit derivative features that no longer qualify under the amended scope
exception, or, for certain investments, an entity can elect fair value option
and record the entire investment at fair value. This accounting guidance will
be effective for us on July 1, 2010. Upon adoption, any changes in the carrying
value of impacted items will be recorded directly in retained earnings. We have
not yet determined the impact this accounting guidance will have on our
consolidated financial statements.
In January 2010, the FASB issued new accounting guidance to require
additional disclosures about purchases, sales, issuances, and settlements in
the rollforward of Level 3 fair value measurements. This new accounting
guidance will be effective for us on January 1, 2011. We do not expect the
adoption of this new accounting guidance to have a material impact on our
consolidated financial statements.
In June 2009, the FASB issued new accounting guidance related to accounting
for transfers of financial assets. This accounting guidance amends the current
guidance on transfers of financial assets by eliminating the qualifying
special-purpose entity concept, providing certain conditions that must be met
to qualify for sale accounting, changing the amount of gain or loss recognized
on certain transfers and requiring additional disclosures. This accounting
guidance will be effective for us on January 1, 2010 and shall apply to
transfers that occur on or after the effective date. The adoption of this
accounting guidance did not have a material impact on our consolidated
financial statements. However, the elimination of the qualifying special
purpose entity concept requires that these entities be considered for
consolidation as a result of the new guidance related to VIEs as discussed
below.
In June 2009, the FASB issued new accounting guidance for determining which
enterprise, if any, has a controlling financial interest in a VIE and requires
additional disclosures about involvement in VIEs. Under this new accounting
guidance, the primary beneficiary of a VIE is the enterprise which has the
power to direct the activities of a VIE that most significantly impacts the
VIE's economic performance and has the obligation to absorb losses or receive
benefits that could potentially be significant to the VIE. This accounting
guidance will be effective for us on January 1, 2010. Upon adoption of this new
accounting guidance, we will be required to consolidate certain VIEs, including
previously qualified special-purpose entities and investment structures. We
will record a transition adjustment for the impact upon adoption to reflect the
difference between the assets and liabilities of the newly consolidated
entities and the amounts recorded for our interests in these entities prior to
adoption. We anticipate the impact upon adoption of this new accounting
guidance will not be material to retained earnings on January 1, 2010, but will
increase total assets and total liabilities approximately $100.0 million.
F-22
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
(3) Investments
(a) Net Investment Income
Sources of net investment income were as follows for the years ended
December 31:

Derivative instruments primarily consist of changes in the fair value of
non-qualifying derivatives, including embedded derivatives, changes in fair
value of certain derivatives and related hedged items in fair value hedge
relationships and hedge ineffectiveness on qualifying derivative instruments.
See note 4 for additional information on the impact of derivative instruments
included in net investment gains (losses).
We generally intend to hold securities in unrealized loss positions until
they recover. However, from time to time, our intent on an individual security
may change, based upon market or other unforeseen developments. In such
instances, we sell securities in the ordinary course of managing our portfolio
to meet diversification, credit quality, yield and liquidity requirements. If a
loss is recognized from a sale subsequent to a balance sheet date due to these
unexpected developments, the loss is recognized in the period in which we
determined that we have the intent to sell the securities or it is more likely
than not that we will be required to sell the securities prior to
F-23
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
recovery. The aggregate fair value of securities sold at a loss during the
years ended December 31, 2009, 2008 and 2007 was $483.0 million, $443.9 million
and $1,334.6 million, respectively, which was approximately 87.9%, 88.8% and
97.5%, respectively, of book value.
The following represents the activity for credit losses recognized in net
income (loss) on debt securities where an other-than-temporary impairment was
identified and a portion of other-than-temporary impairments was included in
OCI as of and for the year ended December 31:

(c) Unrealized Investment Gains and Losses
Net unrealized gains and losses on investment securities classified as
available-for-sale and other invested assets are reduced by deferred income
taxes and adjustments to DAC and PVFP that would have resulted had such gains
and losses been realized. Net unrealized gains and losses on available-for-sale
investment securities reflected as a separate component of accumulated other
comprehensive income (loss) were as follows as of December 31:

F-24
GENWORTH LIFE AND ANNUITY INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended December 31, 2009, 2008 and 2007
The change in net unrealized gains (losses) on available-for-sale investment
securities reported in accumulated other comprehensive income (loss) was as
follows as of and for the years ended December 31: